Daily Morning Note – 29 October 2018


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The S&P 500 finished on Friday just short of a 10 percent decline from its record September high and remains on pace for the worst month since 2009. Treasuries were well bid last week, dragging the 10-year yield back down to 3.08 percent after setting a seven-year high of 3.26 percent earlier this month. The offshore yuan slipped and remains near to the lowest level in a decade. Brazilian assets will be in focus as voters are expected to usher in an era of hard-right politics.

There will be a flurry of heavyweight economic events and plenty of key earnings releases this week. Companies reporting include Facebook, Mastercard, Coca-Cola, General Electric, Sony, Samsung, Apple, Alibaba, Exxon Mobil, PetroChina, Macquarie Group and HSBC. The Bank of England and Bank of Japan announce rate-policy decisions. After raising rates in August the BOE is expected to stand pat, while the BOJ is also expected to maintain its policy settings.


Sembcorp Marine Ltd – Protracted weakness
Recommendation: BUY
Target Price: $1.65

 3Q18 revenue and net loss exceeded our expectation due to an S$34mn loss on the sale of a semi-submersible.
 Repairs and Upgrades segment secured a big contract.
 Order flow, profitability and guidance remain weak.
 We revised down our FY18e BVPS (from SG$1.1 to SG$1.0) due to the loss on the disposal and the lower margin assumption. Based on the 5-year average PBR of 1.6x, our revised TP is S$1.65 (previously S$1.70). It is worth mentioning that the historical PBR low was around 1.0x. We upgrade our recommendation to NEUTRAL due to the recent price correction.

United Overseas Bank Limited – Stable Outlook Despite NIM Contraction
Recommendation: BUY
Target Price: $32.50

 3Q18 PATMI and Revenue were in line with our expectations.
 NIM rose by 2bps YoY but contracted 2bps QoQ due to the intensive build-up of fixed deposits in the third quarter.
 Key earning drivers were loans growth and fee income. Loans grew 9% YoY, driven by broad-based growth across industries and countries.
 Credit costs improved to 18 bps (3Q17: 32bps) due to the absence of problematic O&G sector loans.
 Maintain BUY with target price of S$32.50 (previous TP S$33.70). We derived our revised target price following our earnings adjustments, based on the Gordon Growth Model.

Cache Logistics Trust – Highlighting 2019 risks
Recommendation: NEUTRAL
Target Price: $0.75

 Gross revenue 4.7% higher than expected
 DPU 7.5% higher than expected, partially due to capital distribution of 0.036 cents/unit; DPU from operations 4.9% higher than our forecast
 WALE by NLA has shortened QoQ from 3.5 years to 3.3 years
 Proposed divestment of Jinshan Chemical Warehouse
 Maintain Neutral; new target price of $0.75 (previously $0.82), as we raise the discount rate in view of multiple risks in 2019


IBM to buy open-source software pioneer Red Hat for $34bn, in the biggest acquisition in the IT veteran’s 107-year history.

Investors in General Electric Co. are bracing for the troubled company to slash or suspend its dividend when it re¬ports quarterly results this week.

Great Eastern’s Q3 profit falls 26%. Great Eastern Holdings (GE), the insurance arm of OCBC Bank, announced it had turned a profit of S$213.3 million for its third fiscal quarter, down 26 per cent from S$287.5 million in the year-ago period.

Financial conditions tighten as markets tumble. Goldman index suggest dimming outlook for US economy. The market turmoil of the past month threatens to put the brakes on US economic growth, according to a closely watched measure of financial conditions.

US equity index futures start weekly trading little changed. U.S. equity index futures were little changed at the start of weekly trading on Sunday, leaving it unclear whether Wall Street would rebound from last week’s steep sell-off or extend the slide.

Early indicators show that China’s slowdown worsened again in October. Sentiment continues to spur despite a raft of easing measures. Economic deterioration may spur additional government action.

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

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