DAILY MORNING NOTE | 29 May 2023
Trade of the Day
Analyst: Zane Aw
(Current Price: S$1.84) – TECHNICAL BUY
Buy price: S$1.84 Stop loss: S$1.80 Take profit 1: S$2.01
Take profit 2: S$2.14
Week 22 equity strategy. It was an AI charged week. Nvidia enjoyed a remarked surge of 25% last week, propelling the semiconductor index (SOX) up by almost 11%. It is trading at 50x PE 2 years forward. But it will be hazardous to impose our valuation discipline in front of this rocket ship. Nevertheless, there is some speculative fervour supporting US markets; crypto is up 64% and ARK ETF is up 25% this year.
Nvidia has the lead in AI chip demand not just for their hardware (GPU) but software (CUDA). It is becoming the de-facto standard for building AI models due to its headstart and market share. In its rear view mirror for this GPU (data centre) gold rush are AMD, Baidu, Google and Intel.
Regarding the impact on Singapore equities, data centres could benefit from increased power usage with these accelerated computing demands. We don’t expect the surge in AI chips will reinvigorate the semiconductors stocks on SGX. The budget for cloud computing is still slowing. Budget are just reallocating more towards these AI chips. Our cloud capex proxy (combination of Big 4 Tech capex), is slowing from an annual 30% growth rate over the past three years to just 2-3%, On the headlining US debt ceiling talks, our base case is a resolution. The debt ceiling has already been raised 78 times since 1960. But any scenario is still negative because a resolution will entail government spending cuts. We should also mark something new to our calendar: June 5th, Treasury Yellen’s “X date” before a potential debt default.
Head Of Research
Singapore stocks edged down 0.01 per cent or 0.33 points to 3,207.39 on Friday (May 26). Across the broader market, losers beat gainers 179 to 173 after 920.4 million securities worth S$835.6 million changed hands. South Korea’s Kospi rose 0.2 per cent while Japan’s Nikkei 225 rose 0.4 per cent and the Kuala Lumpur composite index gained 0.04 per cent.
All three major US stock indexes closed the day higher on Friday amid optimism that a deal to avert a potentially catastrophic US debt default was close at hand. Democrats and Republicans inched towards a deal on Friday, with just days to go before the Treasury Department warned the United States could run out of money to pay all of its existing spending obligations. The broad-based S&P 500 rose 1.3 per cent to 4,205.45, while the Dow Jones Industrial Average posted a more modest 1.0 per cent gain to finish the week at 33,093.34.
***We are ceasing coverage of PropertyGuru Group Ltd with immediate effect due to a reallocation of resources. The previous recommendation can no longer be relied upon. ***
The closing date for the offer to take Lian Beng private has been extended to Jun 9, 2023. It was initially due to close at 5.30 pm on Friday (May 26). The extension comes as the total number of shares held by offeror OSC Capital, its concert parties and valid acceptances reached 81.11 per cent of the total number of issued shares of the construction and engineering company. OSC Capital, the investment vehicle of the company’s controlling Ong family, will need this number to cross the 90 per cent threshold in order to acquire the rest of Lian Beng. The holding company is 51 per cent owned by Ong Pang Aik, Lian Beng’s chairman.
Tourism facilities operator Straco Corporation posted a S$1.6 million net profit for its first quarter, reversing a previous loss of S$3 million, as revenue surged higher. The company said in a business update on Friday (May 26) that revenue for the three months ended Mar 31, 2023 rose 159.4 per cent on year to S$12.5 million. Straco, which operates facilities such as the Shanghai Ocean Aquarium and the Singapore Flyer, said its China attractions registered positive revenue growth with higher visitor numbers.
Mapletree Investments on Friday (May 26) posted a net profit of S$1.2 billion for the full year ended Mar 31, 38.8 per cent lower than S$2 billion reported in the same period a year ago. Revenue was flat at S$2.9 billion compared with the previous year. The group noted that operational performance improved, supported by higher contributions from Mapletree Pan Asia Commercial Trust and gradual recovery from the Covid-19 pandemic. Recurring earnings were down 3.8 per cent on the year at S$779.7 million, while total assets under management (AUM) slipped 1.7 per cent to S$77.4 billion. The group said that if not for the strong Singapore dollar, AUM would have passed S$80 billion.
Boustead Singapore reported on Friday (May 26) a 145 per cent increase in net profit for its second half, driven by higher revenue, interest income and other gains. The company said in the bourse filing that net profit for the six months ended Mar 31, 2023 rose to S$22.7 million, up from S$9.3 million in the year-ago period. On a per-share basis, earnings for H2 improved to S$0.0475 from S$0.0192. The board has proposed a final dividend of S$0.025 per share, unchanged from the preceding financial year. This takes the dividend for FY23 to S$0.04 per share, matching the previous financial year.
Stamford Land reported on Friday (May 26) a net profit of S$184.5 million for its second half, significantly higher than the S$15.6 million in the year-ago period on the back of strong gains. The group reported a S$218.6 million gain on disposal of property, plant and equipment, compared to a S$29,000 loss in the prior-year period. This came as the group divested several assets during the financial year, including Stamford Plaza Auckland, as well as Sir Stamford at Circular Quay in Sydney. Stamford Land also had other gains of S$36.1 million in H2 FY23, compared to other losses of S$2.7 million in the year-ago period.
Vaccine maker Moderna said on Friday (May 26) it was looking for opportunities in China after confirming that it had registered a legal entity in the world’s second largest economy. The US biotech firm registered a unit called Moderna (China) Biotech in Shanghai on May 24 with capital of US$100 million.
Oil prices ticked up on Friday as US officials appeared close to striking a debt-ceiling deal, and as the market weighed conflicting messages on supply from Russia and Saudi Arabia ahead of the next Opec+ policy meeting. Brent crude settled 69 cents, or 0.9 per cent, higher at US$76.95 a barrel. US West Texas Intermediate closed up 84 cents, or 1.2 per cent, at US$72.67 a barrel. On a weekly basis, both benchmarks posted a second week of gains with Brent climbing 1.7 per cent, while WTI rose 1.6 per cent.
Alphabet Inc’s Google must pay US$32.5 million in damages for infringing one of smart-speaker maker Sonos Inc’s patents in its wireless audio devices, a San Francisco federal jury decided on Friday. The case is part of a sprawling intellectual property dispute between the former collaborators that includes other lawsuits in the US, Canada, France, Germany and the Netherlands. The companies previously worked together to integrate Mountain View, California-based Google’s streaming music service into Sonos products.
Orders of big-ticket manufactured items defied expectations to rise again in April, fuelled by a sharp rise in orders for defense aircraft, according to US government data released on Friday (May 26). Manufactured durable goods rose by 1.1 per cent in April from a month earlier to US$283.0 billion, the Commerce Department said. April’s figure built on a revised monthly increase of 3.3 per cent in March.
Source: SGX Masnet, Bloomberg, Channel NewsAsia, Reuters, CNBC, WSJ, The Business Times, PSR
Recommendation: ACCUMULATE (Maintained); TP S$2.84, Last close: S$2.47; Analyst Paul Chew
– FY23 revenue met our expectations at 103% of FY23e estimates. EBITDA was 96% of estimates. Australian dollar weakness of 7.4% YoY in 2H23 was a major drag to earnings.
– 2H23 underlying PATMI grew 11% to S$1.05bn. Almost all the growth came from lower depreciation and amortisation of S$90mn. Optus remains the major drag in earnings with its paltry ROIC of ~2% and 2H23 net profit of only A$7mn.
– We left our FY24e revenue and EBITDA relatively unchanged. Our SOTP TP of S$2.84 and ACCUMULATE recommendation is maintained. Capital management remains the largest upside with planned capital recycling of S$6bn, including disposal of Trustwave, redevelopment of Comcentre and partial monetisation of infrastructure assets (datacentre, satellite, submarine cable). Any longer-term re-rating and improvement in ROIC will include a more significant return to profitability for Optus.
Recommendation : ACCUMULATE (Downgraded); TP: US$440.00, Last Close: US$389.46
Analyst: Maximilian Koeswoyo
– 1Q24 results were within expectations. Revenue/PATMI was at 24% of our FY24e forecasts.
– Revenue beat guidance due to growth in the Data Centre segment. 2Q24 guidance of a 64% YoY growth in sales, largely driven by steep demand in Generative AI and LLMs across its customer base.
– Sales for Gaming, and Professional Visualisation continued their YoY contraction but moderated compared to their YoY decline in 4Q23. Revenue for both segments were up QoQ as NVDA ramps its new Ada Lovelace-based GPUs.
– We increase our FY24e revenue/PATMI by 30%/52% to account for the higher-than-expected growth in Data Centre business and lower-than-expected operating expenses. We downgrade from BUY to ACCUMULATE rating with an increased target price of US$440.00 (prev. US$315.00), with a WACC of 6.8%, and a terminal growth rate of 4.5%, due to the recent share price performance.
PSR Stocks Coverage
For more information, please visit:
Guest Presentation by BHG Retail REIT [NEW]
Date: 30 May 2023
Time: 12pm – 1pm
Guest Presentation by Sunview Group Berhad [NEW]
Date: 1 June 2023
Time: 12pm – 1pm
Guest Presentation by Power Integrations [NEW]
Date: 14 June 2023
Time: 8.30pm – 9.30pm
Guest Presentation by United Hampshire US REIT [NEW]
Date: 28 June 2023
Time: 7pm – 8pm
PHILLIP RESEARCH IN 3 MINS
Phillip Research in 3 minutes: #29 Keppel Corporation; Initiation
Click here for more on Phillip in 3 mins.
The information contained in this email and/or its attachment(s) is provided to you for information only and is not intended to or nor will it create/induce the creation of any binding legal relations. The information or opinions provided in this email do not constitute an investment advice, an offer or solicitation to subscribe for, purchase or sell the e investment product(s) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of this information. Investments are subject to investment risks including possible loss of the principal amount invested. The value of the product and the income from them may fall as well as rise. You may wish to seek advice from an independent financial adviser before making a commitment to purchase or investing in the investment product(s) mentioned herein. In the event that you choose not to do so, you should consider whether the investment product(s) mentioned herein is suitable for you. PhillipCapital and any of its members will not, in any event, be liable to you for any direct/indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials attached to this email. The information and/or materials provided 揳s is?without warranty of any kind, either express or implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials.
This e-mail and its attachment(s) may contain privileged or confidential information, which is intended only for the use of the recipient(s) named above. If you have received this message in error, please notify the sender immediately and delete all copies of it. If you are not the intended recipient, you must not read, use, copy, store, disseminate and/or disclose to any person this email and any of its attachment(s). PhillipCapital and its members will not accept legal responsibility for the contents of this message. Thank you for your cooperation.