Daily Morning Note – 28 January 2022

Welcome to our Daily Morning Note from our Research team!

PHILLIP SUMMARY

U.S. equity futures rose Friday after strong Apple Inc. earnings aided sentiment, while Asian stocks looked set to recover some of the losses sparked by the Federal Reserve’s pivot to tighter monetary policy.

Contracts on the tech-heavy Nasdaq 100 were up about 1%. Apple Inc. rallied in extended trading on record sales that signaled it weathered supply-chain snarls. Australian shares rose, as did futures for Japan and Hong Kong.

U.S. shares Thursday ended lower in another volatile Wall Street session that saw the dollar jump. The S&P 500 and Nasdaq 100 again failed to hold intraday rallies, while a gauge of U.S. small-caps slumped into a bear market.

Treasuries were mixed, with the 10-year yield dropping to 1.80% and the yield curve flatter. A dollar gauge pushed higher, in part after solid U.S. growth data reinforced expectations for Fed tightening to fight inflation. Oil advanced and gold held a retreat.

Stocks to watch: Keppel Corporation


BREAKING NEWS

SG

Keppel Corporation on Thursday (Jan 27) reported net profit of S$722.9 million for the second half of FY2021 ended December, up from S$31.3 million in the corresponding year-ago period. This brought the group’s profit for the full FY2021 to a 6-year high of S$1 billion, a reversal from a loss of S$505.9 million in FY2020.

Technology solutions provider Frencken Group on Thursday (Jan 27) entered into a sale and purchase agreement (SPA) to acquire a 50 per cent stake in Malaysian company Penchem Technologies for RM15.6 million (S$5.2 million). Under the agreement, Frencken has agreed to purchase 261,500 ordinary shares from 2 directors and shareholders of Penchem – Ng Chee Mang and Wong Kah Gin. Frencken has also simultaneously entered into a subscription agreement with Penchem to subscribe for 10,058 shares, or 1.92 per cent of the ordinary shares of Penchem. The subscription price for these shares was RM0.6 million.

Alpina Holdings announced on Thursday (Jan 27) that it has raised approximately S$8.1 million in net proceeds for the company from the full subscription of its 37 million placement shares. Former minister for National Development Mah Bow Tan, Lim Theng Sian, Pheim Asset Management as well as Beh Sim Lim and Bico Holdings subscribed to 8.7 per cent of the placement shares each, while former Tanjong Pagar Constituency Member of Parliament Chong Weng Chiew, Eternal Glade Investment and Polos Capital each subscribed to 5.1 per cent of the placement shares.

Novo Tellus Alpha Acquisition (NTAA) on Thursday (Jan 27) ended its first day of trading on the Singapore Exchange mainboard at S$4.86, 2.8 per cent or S$0.14 lower than its initial public offering (IPO) price of S$5. From the start of trading at 9am till market close, the units traded within a band of S$4.82 and S$ 5.01 after around 1.3 million units changed hands. Units of the special purpose acquisition company (SPAC) opened at S$5, unchanged from its IPO price. The units dipped below S$5 within the first 5 minutes of trading and traded between S$4.82 and S$4.99 for the rest of session before ending at S$4.86.

Property developer GuocoLand posted a 195 per cent rise in net profit to S$67.5 million for its first half ended Dec 31, 2021, from S$22.9 million a year ago. This was on the back of stronger revenue growth as the company saw broad-based growth across all its business segments, the property developer said in a bourse filing on Thursday (Jan 27). Earnings per share stood at 5.22 Singapore cents for the half-year period, up from 1.2 cents a year ago. Revenue for H1 rose 42 per cent to S$452.7 million, from S$319.6 million a year ago, mainly driven by the higher progressive recognition of sales from the group’s residential developments in Singapore, as well as higher sales contribution from China.

SPH Media Trust (SMT) – a company limited by guarantee that took over Singapore Press Holdings’ media business last December – has under-invested in talent and technology over the last few years, and these are 2 areas the organisation must address, said SMT chairman Khaw Boon Wan on Thursday (Jan 27). “Those are the 2 big gaps where we have to make the corrections as soon as we can. And in fact, we have started that process,” he said at a media briefing to give an update on SMT’s work over the past 2 months. “We are grateful to the listed company that they have facilitated some of the changes that we wanted to push in even before we took over on Dec 1,” Khaw added.

US

Applications for US state unemployment insurance fell for the first time in 4 weeks, partially unwinding a recent spike in claims due to the Omicron variant. Initial unemployment claims totaled 260,000 in the week ended Jan 22, down 30,000 from the prior period, Labor Department data showed on Thursday (Jan 27). The median estimate in a Bloomberg survey of economists called for 265,000 applications. Applications declined after a surge in recent weeks amid an uptick in Covid-19 cases across the country. Claims have largely been falling in the past year as companies are desperate to retain and attract talent amid ongoing labour shortages. Continuing claims for state benefits advanced to 1.68 million in the week ended Jan 15.

After contracting in 2020, US economic growth rebounded to 5.7 per cent in 2021, the second year of the Covid-19 pandemic, the government reported on Thursday (Jan 27). But the hit from the Omicron variant of the virus held down the recovery in the final quarter of the year, when gross domestic product (GDP) grew 6.9 per cent. Inflation increased 3.9 per cent in 2021, according to the Commerce Department’s personal consumption expenditures (PCE) price index.

The US dollar soared to its highest levels since July 2020 against other major currencies on Thursday (Jan 27), powered by bets the US Federal Reserve could deliver faster and larger interest rate hikes in the months ahead. A day after the Fed flagged that it was ready to start lifting rates in March to contain inflation, money markets moved to price in as many as 5 quarter-point increases by year-end. This backdrop brought dollar bulls out in force – the dollar index, which measures the greenback’s value against other major currencies, rose to 97.120, the highest since July 2020.

China has told the United States it wants to see all sides involved in Ukraine remain calm and avoid increasing tension while the United States stressed de-escalation and warned of the security and economic risks from Russian aggression. China’s Foreign Minister Wang Yi and US Secretary of State Antony Blinken spoke about Ukraine on a telephone call late on Wednesday (Jan 26). “We call on all parties to stay calm and refrain from doing things that agitate tensions and hype up the crisis,” Wang told Blinken, China’s foreign ministry said in a statement.

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

Microsoft Corp – Firing on all cylinders

Recommendation: BUY (Maintained); TP US$410.00, Last close:

US$299.84; Analyst: Timothy Ang

– 1H22 revenue was in line at 50% of our FY22e forecasts, while PATMI exceeded expectations at 58% of FY22e.

– Azure revenue growth and commercial bookings exceeded expectations on continued demand for cloud computing.

– Operating margins elevated in every segment, driven by demand for premium licenses, improvements in cloud services and high-margin services.

– Maintain BUY with a higher target price of US$410.00 as we raise our FY22e PATMI forecast by 4%. Valuations based on DCF with a WACC of 6.2% and terminal growth of 4.0%. We expect another strong quarter in 3Q22 from continued strength in all segments despite slight headwinds from a stronger USD

Technical Pulse: City Development Ltd

Recommended: Technical BUY; Analyst: Chua Wei Ren

City Development (SGX: C09) Technicals indicate a strong possibility of the price edging higher, but expect some minor correction to test the immediate support at 6.85-6.94 as:

Buy limit: 6.94 Stop loss: 6.52 Take profit 1: 7.40 Take profit 2: 7.65

POEMS Podcast: Let the Money Talk

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