DAILY MORNING NOTE | 28 July 2023

Trade of the Day

Hiap Tong Corporation Ltd (SGX: 5PO)

Analyst: Zane Aw

(Current Price: S$0.141) – TECHNICAL BUY
Buy price: S$0.141 Stop loss: S$0.134 Take profit: S$0.170

Asian markets including Singapore mostly climbed on Thursday (Jul 27), hours after the Federal Reserve hiked its keenly-watched policy rate range by 25 basis points to between 5.25 per cent and 5.50 per cent. Singapore share rose 32.46 points or 1 per cent to 3,337.42.

WALL Street stocks tumbled on Thursday (Jul 27) on resurgent concerns about higher interest rates, snapping a 13-day winning streak for the Dow. The blue-chip index appeared poised to tie the all-time streak set in 1897. But after rising early in the day, equities headed lower in the afternoon as worries about more aggressive Federal Reserve actions took hold. The Dow Jones Industrial Average, which had tied a 13-day streak last seen in 1987, finished down 0.7 per cent at 35,282.72. The broad-based S&P 500 shed 0.6 per cent to 4,537.48, while the tech-rich Nasdaq Composite Index lost 0.6 per cent at 14,050.11.

SG

Singapore Airlines (SIA) reported 1Q24 net profit of S$734mn (+98.4% YoY) and EPS of 24.7 cents. 1Q24 revenue rose 14.0% YoY on the back of higher passenger volume (+33.5% YoY), which outpaced the decline in cargo volume (-11.3% YoY). Notably, yields are trending lower – passenger yield down 1.6% YoY to 12.1 cents/pkm and cargo down 44.3% to 44.6 cents/ltk. Passenger load factor gained 5.7 ppt to 88.1%, while cargo fell 13.7 ppt to 51.8%. SIA expects capacity at end FY24 to reach 90% of pre-pandemic level. Operating expenses rose by a smaller 10.5%, due to cheaper jet fuel (-21.8%) and fuel hedging gain of S$101mn (1Q23: S$202mn). The latter is not expected to recur as lower-priced hedges have matured and remaining hedge positions are at prices closer to prevailing market levels. We think this could be its best quarter in FY24. We expect a deceleration in yields for both passenger and cargo as other carriers add flight capacity while air travel demand ease. It could also face higher crew and manpower costs. After the partial redemption of MCBs, balance sheet is in net debt of S$0.9bn. NAV of S$5.78/share could further fall if the remaining MCB were to be redeemed. SIA trades at 1.3x book. Maintain our FY24 net profit estimate of S$1.74bn. REDUCE and TP of S$6.80.

Peggy Mak Bang Mui
Manager, Research
peggymak@phillip.com.sg

Keppel Corp Excluding discontinued operations, Keppel’s 1H23 net profit rose marginally by 2.5% to S$445mn. It booked a gain of S$3.3bn from the disposal of Keppel Offshore and Marine to Seatrium. It also announced a distribution-in-specie of 1 KReit unit for every 5 existing Keppel shares. Keppel’s stake will reduce by 9.4% to 37.1%. The distribution will result in S$135mn loss for Keppel, partly due to KReit’s market price being below the value in Keppel’s book.

Infrastructure is the key earnings driver. The segment doubled net profit to S$291mn, due to earnings from integrated power business, driven by higher net generation and contracted spreads. Real estate disappointed (-29%) due to weaker sales, lower fair value gains, and higher interest expense. Connectivity (M1 and data centre and network) grew net profit by 12% to S$37mn. Keppel’s focus is to embark on asset monetization to lighten its balance sheet and transform into an asset manager to generate recurring income. However, asset monetization slowed to S$415mn in 1H23. FUM growth also slowed. As at end June, FUM was S$53.2bn (Dec 22: S$50bn), though it keeps to its target of S$100bn by 2026 and S$200bn by 2030. Maintain BUY.

Peggy Mak Bang Mui
Manager, Research
peggymak@phillip.com.sg

CapitaLand Ascott Trust’s 1H23 gross profit rose 31% to S$154.4mn YoY on stronger performance and contribution from new properties. Portfolio RevPAU grew 20% YoY in 2Q23 to S$149 and is currently at 98% of pre-COVID 2Q19 RevPAU, mainly due to higher average daily rates which surpassed pre-COVID levels. Amongst CLAS’ key markets, Australia, Japan, Singapore, UK and USA performed above pre-COVID RevPAU levels in 2Q23, while China and Vietnam RevPAU strengthened to 78% and 83% of 2Q19 levels, respectively. As a result,1H23 Distribution per Stapled Security (DPS) rose 19% YoY to 2.78 Singapore cents. We expect further growth in RevPAU going forward as international flight capacities pick up pace – it has not fully recovered to 2019 levels. Annualised distribution yield is 5%.

Chan Run Xiong Darren
Research Analyst
darrenchanrx@phillip.com.sg

Finnish oil refiner and biofuels producer Neste missed second-quarter operating earnings expectations on Thursday (Jul 27) and said expansion of its Singapore renewables plant was delayed by equipment repairs, sending its shares down 12 per cent. Renewable fuels are a cornerstone for the company, which said it expects to complete its Singapore plant expansion by the end of the year.

Cortina Holdings received about 100 queries from customers in relation to a cybersecurity attack it was subjected to in June. To strengthen its defences against hackers, the luxury watch dealer set up a hotline on Jun 7 to answer queries on the incident from customers via e-mail or telephone.

Digital Core Reit’s distribution per unit sank 6.8 per cent to US$0.0192 for its first half-year ended June, from US$0.0206 the year before, as a result of lower rental income. Two of its tenants filed for bankruptcy, which caused them to fall behind on rent payments. One of these customers has since vacated the data centre it was occupying in Toronto, Canada, and has been replaced by other tenants, the Reit manager said on Thursday (Jul 27) in a bourse filing.

THE manager of Starhill Global real estate investment trust has declared a distribution per unit of S$0.0198 for the second half of its current financial year (FY2022/2023), a 2 per cent drop from the DPU of S$0.0202 in the year-ago period. Distributable income fell 3.7 per cent to S$45.4 million for the reporting period ended Jun 30, driven by a lower net property income and higher net finance costs, said the manager in a bourse filing on Thursday (Jul 27). It also said that it would retain S$0.7 million of distributable income for H2 as working capital.

Sheng Siong on Thursday (Jul 27) reported a 3 per cent decrease in net profit to S$65.4 million for the first half of 2023, from S$67.4 million in the year-ago period. This comes as the group incurred higher operating expenses in the period, with staff costs increasing by S$6.1 million.

US

US regulators unveiled a sweeping overhaul on Thursday (Jul 27) that would direct banks to set aside billions more in capital to guard against risk, which was immediately slammed by the industry as “misguided” .If fully implemented, the proposal would raise capital requirements for large banks by an aggregate 16 per cent from current levels, with the brunt felt by the largest and most complex firms, regulators said. The industry is already warning that such a big hike could force them to trim services, raise fees, or both.

Ford Motor on Thursday raised its 2023 guidance after second-quarter earnings significantly beat Wall Street expectations, boosted by strong pricing and demand for the automaker’s traditional vehicles. Ford increased its full-year adjusted earnings forecast to a range of between $11 billion and $12 billion, up from a prior forecast $9 billion and $11 billion.

Intel reported second-quarter earnings on Thursday, and showed a return to profitability after two straight quarters of losses. The company issued a stronger-than-expected forecast.

Mastercard on Thursday (Jul 25) reported a bigger-than-expected rise in second-quarter profit, boosted by resilient spending in a turbulent economy. Unfazed by stubborn inflation and a stormy economic environment, Mastercard’s customers continued to spend heavily on travel and entertainment even as rate hikes by the Federal Reserve have increased the odds of a recession later this year.

Shell reported on Thursday (Jul 27) profits of US$5 billion in the second quarter, dropping by 56 per cent from a year earlier as oil and gas prices cooled after rallying on the back of Russia’s invasion of Ukraine. Shell increased its dividend to US$0.33 per share in the quarter, as previously announced in June. It also announced the repurchase of US$3 billion in shares over the next three months, compared with US$3.6 billion in the previous three months. Shell’s adjusted earnings missed company-provided analyst forecasts of US$5.8 billion in earnings.

McDonald’s beat market expectations for quarterly comparable sales on Thursday (Jul 27), as the restaurant chain’s relatively cheaper burgers and fries attracted cost-conscious diners in an inflationary environment. The company’s shares rose nearly 2 per cent to US$297.09 in premarket trading.

India’s Adani Enterprises said on Thursday (Jul 27) its new renewable energy-focused unit raised a working capital loan of US$394 million from Barclays and Deutsche Bank for its integrated solar module manufacturing facility. Adani New Industries Limited (ANIL) is building an integrated green hydrogen businesses, including solar modules and wind turbine manufacturing.

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

RESEARCH REPORTS

Frasers Centrepoint Trust – Steady operating metrics

Recommendation: Accumulate (Maintained), Last Done: S$2.19

Target price: S$2.35, Analyst: Darren Chan

– No financials provided in this business update. Retail portfolio occupancy increased 1.6ppts YoY to 98.7% (1H23: 99.2%).

– Tenant sales and shopper traffic improved 5% and 16% YoY respectively. YTD tenant sales averaged c.16% above pre-COVID levels.

– Maintain ACCUMULATE, DDM TP unchanged at S$2.35. Catalysts include stronger than forecast rental reversions and accretive acquisitions. The current share price implies a FY23e DPU yield of 5.6%.

Spotify Technology S.A. – Record new users added

Recommendation : ACCUMULATE (Maintained); TP: US$162.00, Last Close: US$149.13

Analyst: Jonathan Woo

– 2Q23 results were within expectations. 1H23 revenue was at 45% of our FY23e forecasts, with adj. net loss (excl. one-offs) EUR25mn lower than our FY23e forecasts. Net loss was impacted by -EUR135mn in restructuring related charges.

– Record MAU growth with 36mn new users, attracting new Gen Z listeners through better podcast content. 3Q23 guidance is for slower net add of 21mn MAUs and revenue growth of 9% YoY.

– Renewed focus on efficiency with headcount falling 2% QoQ, cut underperforming podcasts and price increases in >50 markets.

– We widen FY23e net loss by -EUR423mn to account for higher restructuring, finance, and tax charges, while keeping FY23e revenue unchanged. We maintain ACCUMULATE with a reduced DCF target price of US$162.00 (prev. US$165.00), with a WACC of 7.5%, and a terminal growth rate of 4%.

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