Daily Morning Note – 28 February 2022

U.S. equity futures slid, bonds rose and oil surged Monday amid heightened market uncertainty after Western nations unveiled harsher sanctions on Russia for the invasion of Ukraine.

S&P 500 contracts lost more than 2%, while those for the technology-heavy Nasdaq 100 tumbled some 3%. Crude oil surged in excess of 7% at one point.

The euro shed about 1% against the dollar on worries about risks for Europe’s economy. A rally in Australian bonds and gold signaled demand for havens. Commodity-linked and some emerging-market currencies declined.

Australian shares were steady and equity futures for Japan pointed to a muted start there. Cryptocurrency Bitcoin held losses after retreating below $38,000.

Stocks to watch: Golden Energy and Resources

SG

Mainboard-listed coal miner Golden Energy and Resources (Gear) will place up to an aggregate of 285 million new ordinary shares at an issue price of S$0.305 to raise approximately S$86.9 million. In a bourse filing late on Friday (Feb 25), the company said that it had entered into a placement agreement, with KGI Securities as its placement agent. The placement price represents a discount of approximately 4.7 per cent to the volume weighted average price of S$0.3199 per ordinary share on Friday. Assuming the proposed placement is fully subscribed, the company’s issued shares will rise to 2,638,100,380, with the placement shares accounting for 10.8 per cent of the enlarged issued and paid-up share capital of the company. The issued shares also represent 12.1 per cent of the issued and paid-up share capital of the company as of Feb 27.

Mainboard-listed Tuan Sing Holdings recorded a net loss of S$17.1 million for the 6 months ended Dec 31, 2021 on Friday (Feb 25), from a net profit of S$52.4 million it recorded a year earlier. This comes as the property group recorded a fair value loss of S$3.3 million, down from a fair value gain of S$42 million a year ago due to the absence of fair value gain from Robinson Point office building on Robinson Road, which the group sold in June 2021. The revaluation of its investment properties also led to net fair value loss. Including fair value adjustments, loss per share stood at S$0.014, down from earnings per share of S$0.044 recorded a year ago. Excluding fair value adjustments, loss per share stood at S$0.01, down from earnings per share of S$0.011.

Europe-focused IReit Global posted a 7.9 per cent rise in distribution per unit (DPU) to 1.50 euro cents (22 Singapore cents) late on Friday (Feb 25), up from 1.39 euro cents for the half-year ended Dec 31, 2021. The real estate investment trust (Reit) manager noted it had issued 11,372,868 placement units and 201,137,870 preferential offer units on June 30 and July 21 last year, which are entitled to the distribution for the financial period from June 30, 2021 to Dec 31, 2021. Gross revenue rose 43.6 per cent to 28.5 million euros, while net property income rose 34.4 per cent to 23.2 million euros. The Reit manager retained 1.9 million euros of income.

Mainboard-listed Yangzijiang Shipbuilding’s net profit rose 54 per cent to 2.06 billion yuan (S$441.4 million) for the 6 months ended Dec 31, 2021, up from the 1.34 billion yuan it posted during the same period a year earlier. Revenue for the same period rose by 55 per cent to 10.17 billion yuan, up from 6.58 billion yuan the year before. The rise in revenue comes on the back of an increase in core shipbuilding revenue as the group shipped 27 vessels in the second half of the year, up from 17 vessels the previous year. Core shipbuilding revenue rose 80 per cent to 8.42 billion yuan.

Novo Tellus Alpha Acquisition exercised part of its over-allotment option to issue over 1 million units on Friday (Feb 25). Following the exercise’s completion, the total number of the special purpose acquisition company’s (SPAC) units in issue will increase from 30 million to a little more than 31 million. The over-allotment option was previously made known on Jan 26, a day before it made its trading debut at S$5 on the Singapore Exchange’s mainboard. The option allows the company’s stabilising manager, Credit Suisse Singapore, to subscribe, on 1 or more occasions, for up to an aggregate of 2 million units, representing not more than 20 per cent of the total number of offering units, to undertake stabilising actions.

Hong Leong Asia‘s net profit fell 26 per cent year on year to S$19.4 million for the half year ended Dec 31, 2021, as its engine-making unit Yuchai faced a 21 per cent drop in sales volumes to 171,449 units due to lower truck engine sales. The industrial conglomerate’s revenue was down as well, by 11.2 per cent to S$2.1 billion. Earnings per share stood at 2.58 Singapore cents, against H2 FY2020’s 3.3 cents. In its bourse filing on Friday, Hong Leong Asia highlighted that in spite of that Yuchai’s full-year revenue was up 7.9 per cent to S$4.4 billion. This was as the number of engines sold through the unit still grew 6.2 per cent to 456,791 units in FY2021, compared with 430,320 units in FY2020.

US

The Securities and Exchange Commission is proposing a new set of reporting requirements for short-selling activity that it says will help regular people and market watchdogs better understand what’s going on in the stock market and how short sellers are affecting the prices of individual stocks. The rules, if adopted, would require investment managers such as hedge funds to submit monthly reports about their short positions, which the regulators would then publish in aggregate, according to a proposal the SEC announced Friday. The thresholds for reporting would be based on the size of the investors’ short positions, not the size of the investment firms themselves.

Western nations agreed to unleash new sanctions to further isolate Russia’s economy and financial system after initial penalties failed to persuade President Vladimir Putin to pull out of Ukraine. A decision by Western nations to exclude some Russian banks from the SWIFT messaging system, used for trillions of dollars’ worth of transactions between banks around the world, was announced in a joint statement on Saturday. The move is aimed at Russian banks that have already been sanctioned by the international community, but can be expanded to other Russian banks if necessary, according to a spokesman for the German government.

Goldman Sachs Group became the latest bank to be investigated over employees communicating using messaging services that aren’t approved by the companies. Goldman is cooperating with the Securities and Exchange Commission and producing documents related to an investigation into “compliance with records preservation requirements relating to business communications sent over electronic messaging channels that have not been approved by the firm,” the New York-based bank said in a regulatory filing Friday. In December, the SEC and Commodity Futures Trading Commission imposed US$200 million in fines on JPMorgan Chase & Co, saying that even managing directors and other senior supervisors at the bank had skirted regulatory scrutiny by using services such as WhatsApp or personal email addresses for work-related communication.

The Federal Reserve reiterated its view that it will “soon” be time to raise interest rates to counter high inflation amid a buoyant US job market. “With inflation well above the FOMC’s longer-run objective and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate,” the US central bank said in its semi-annual report to Congress, referring to the policy-setting Federal Open Market Committee. The report was released Friday (Feb 25) ahead of testimony to lawmakers next week by Chair Jerome Powell. Powell told reporters after officials met in January that they were leaning toward raising rates at their Mar 15-16 meeting to confront the hottest inflation in 40 years.

Blackstone chief executive officer Steve Schwarzman took home US$1.1 billion in dividends and compensation in 2021, in what amounts to one of Wall Street’s biggest annual payouts on record. It was the first time that Schwarzman, 75, collected more than US$1 billion in a year. He generated US$941.6 million through dividends from his 19 per cent stake in New York-based Blackstone, according to a regulatory filing Friday. He also earned US$160.3 million from compensation, which is mostly profit tied to funds on top of a US$350,000 salary.

Chevron Corp is in advanced talks to buy Renewable Energy Group for about US$3 billion, according to people familiar with the matter, as the oil major looks to make a big bet on green diesel. Renewable Energy rose more than 36 per cent in after-market trading on the news. Chevron is discussing paying US$61.50 per share for Renewable Energy, said the people, who asked to not be identified because the matter isn’t public. A deal could be announced as soon as next week, the people added. No final decision has been made and the terms could change or talks could still fall through.

Source: SGX Masnet, The Business Times, Bloomberg, Channel NewsAsia, Reuters, CNBC, PSR

Oversea-Chinese Banking Corp Ltd – Higher-than-expected allowances

Recommendation: Buy (Maintained), Last done: S$11.85
TP: S$14.22, Analyst: Glenn Thum

– FY21 earnings of S$4.86bn met our estimates despite higher-than-expected allowances which were offset by higher net interest income. 4Q21 DPS rose 12% to 28 cents.

– Management guidance is single-digit loans growth, stable NIMs and lower credit costs for FY22e.

– Maintain BUY with an unchanged target price of S$14.22. We raise FY22e earnings by 13% as we increase NII and fee income estimates for FY22e. We assume 1.28x FY22e P/BV and ROE estimate of 9.3% in our GGM valuation. Catalysts include lower provisions and higher interest income as economic conditions improve. A 100bps rise in interest rates can raise NIM by 0.18% and PATMI by 10%. OCBC is our preferred pick amongst the three banks due to attractive valuations, upside in dividend from the 15% CET 1 buffer and lower provisioning as Indonesia and Malaysian economies recover.

PropNex Ltd – Record earnings but caution ahead

Recommendation: NEUTRAL (Downgraded); TP S$1.74, Last close: S$1.76; Analyst Paul Chew

– 4Q21 PATMI almost doubled to S$14m. FY21 revenue was within our estimates but PATMI was 5% below forecast due to lower margins.

– Final dividend was raised 75% YoY to 7 cents. FY21 dividend is up 127% to 12.5 cents.

– After cooling measures announced on 16 December, we expect a sharp 28% decline in FY22e. New home sales will bear the brunt of the weakness. Record low inventory of 14.1k, higher stamp duties and TDSR and a more cautious buyer sentiment will keep transactions subdued. In the last two cooling measures of 2013 and 2018, combined new and resale volumes recovered to new highs only after a two- to three-year period. Our FY22e PATMI is cut by 27% to S$43.5mn. Similarly, our DCF target price is lowered from S$2.08 to S$1.74. We downgrade our ACCUMULATE recommendation to NEUTRAL. Dividends are attractive at 5% for FY22e, as the company undergoes a year of consolidation following record earnings last year.

Venture Corporation Ltd – Robust demand but shortages persist

Recommendation: NEUTRAL (Maintained); TP S$20.00, Last close: S$17.68; Analyst Paul Chew

– Results met expectations. FY21 revenue and PATMI were 99% and 100% respectively of our estimates. 4Q21 revenue was up 9% YoY to S$905mn, recovering from a disrupted 3Q21. Final dividend of 50 cents unchanged from last year.

– Manufacturing returned to full capacity in Malaysia around September. But semiconductor shortages persisted in 4Q21.

– We raise FY22e PATMI by around 4%. The target price is also being increased to S$20.00 (previous S$19.20). The target price is based on 16x PE FY22e, its 5-year average. Our recommendation is an upgrade from NEUTRAL to ACCUMULATE. We expect stronger growth in FY22e. Order pipeline is healthy across all verticals but the availability of components will dictate the ability to fulfil demand. We believe Venture can better navigate these challenges with a record S$1bn build up in inventory and a higher readiness than in the past. The share price is supported by dividend yields of almost 5%, 13% ROEs and S$808mn net cash.

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