DAILY MORNING NOTE | 3 August 2023

Singapore stocks fell 1.4 per cent on Wednesday (Aug 2) amid broad selling across the region, after ratings agency Fitch downgraded the credit rating of the US. Shares of Singtel, which were trading ex-dividend led the decliners, sinking 6.8 per cent to S$2.46. Other counters that also saw heavy selling include Sats, which slid 3.2 per cent to S$2.73 and DFI Retail Group, which was down 2.3 per cent to US$2.58. Yangzijiang Shipbuilding was the top gainer after climbing 1.3 per cent to S$1.57.

Wall Street stocks dropped on Wednesday, joining a sea of red on global equity bourses. The Dow Jones Industrial Average shed almost 350 points, or 1.0 per cent, to finish at 35,282.52. The broad-based S&P 500 dropped 1.4 per cent to 4,513.39, while the tech-rich Nasdaq Composite Index tumbled 2.2 per cent to 13,973.45.

Top gainers & losers





DBS’ 2Q2023 results beat expectations with net profit of S$2.69bn vs consensus estimate of S$2.39bn. Bulk of the beat was from stronger than expected net interest income of S$3.43bn (+40% YoY) and net interest margin growth to 2.16% (+58bps YoY). Fee income recovered and grew 7% YoY but fell 3% QoQ to S$768mn. Credit costs rose slightly by 2bps to 10bps as allowances were up 57% YoY to S$72mn mainly due to a rise in SPs to S$114mn (+65% YoY). 2Q23 dividend up 33% to 48 cents, bringing 1H23 dividend to 90 cents. More details to follow after 11.30am analyst call.

Glenn Thum
Senior Research Analyst

Great Eastern Holdings Limited reported its financial results for the half-year ended 30 June 2023 with the Group’s Total Weighted New Sales (“TWNS”) for 2Q23 and 1H23 declining 39% and 31% respectively against the same periods a year ago, reflecting lower single premium sales from the Singapore market. This was partially offset by growth in regular premium sales, particularly in protection plans and whole life plans through the Group’s core distribution channels. The Group’s New Business Embedded Value (“NBEV”) fell 9% for 2Q23 and 10% for 1H23 to S$181.5 million and S$351.2 million respectively. NBEV margin, however, has improved for 2Q23 and 1H23 due to more favourable product mix towards protection plans in Singapore and Malaysia. Across the Group, the total new customer base grew by over 150,000 in 1H23. The Board of Directors has declared an interim one-tier tax exempt dividend of 35 cents per ordinary share, to be paid on 31 August 2023.

CapitaLand Ascott Trust (CLAS) has announced plans to acquire three lodging assets from its sponsor at an agreed property value of S$530.8 million. It also intends to launch a fundraising exercise to raise at least S$300 million to partially fund the acquisition with the issue of new stapled securities. The three assets are The Cavendish London hotel in the UK, the Temple Bar Hotel in Dublin, Ireland, and the Ascott Kuningan Jakarta serviced residence in Indonesia. CLAS’ manager said on Wednesday (Aug 2) that it expects the proposed acquisition to raise its total distribution by S$13.5 million and its distribution per security by 1.8 per cent on a FY2022 pro forma basis. The equity fundraising comprises a private placement of between 187.8 million and 192.1 million new stapled securities within the proposed issue price range of S$1.041 to S$1.065, as well as a pro rata and non-renounceable preferential offering of up to 100.5 million new stapled securities at between S$1.025 and S$1.044. About S$170.2 million of the amount raised from this will go towards partially funding the acquisitions.

Keppel Corporation has disposed of another 50 million shares in Seatrium for a total consideration of S$7.26 million, or 14.52 cents each. The disposal, which amounts to a 0.07% stake in Seatrium, was done via the market on July 28. The recent disposal comes after Keppel sold some 42 million shares in Seatrium for S$5.17 million, or 12.3 cents each, on June 5. After the latest transaction, Keppel has an interest in 2.1496% of the shares in Seatrium.

A wholly-owned subsidiary of Catalist-listed Sanli Environmental Limited has proposed to divest its leasehold property at 28 Kian Teck Drive for S$4.95 million, owing to the group’s expansion. According to an Aug 2 bourse filing, Sanli M&E Engineering has granted an option to purchase to a company named Global Training Services. “The purchaser is an independent and unrelated third party and has duly exercised the option on Aug 2.” The property has leasehold tenure of 30 years commencing from Jan 1, 2012. The property comprises office and workshop space, with a gross floor area of approximately 1,982.4 sq m and is currently occupied by the Sanli Environmental group for its own use. Based on the property’s audited net asset value of approximately S$3.295 million as of March 31, the proposed disposal is expected to result in a gain on disposal of approximately S$1.655 million. The proposed disposal will result in a positive cash inflow of S$4.851 million, says the group.

OUE Limited and the manager of OUE Commercial REIT have unveiled a S$22 million asset enhancement initiative (AEI) for Crowne Plaza Changi Airport (CPCA), expected to complete by end-2023. Works include the addition of 12 guest rooms to a total room stock of 575 and repurposing a former restaurant space into a 352 sq m function room. In an Aug 2 statement, the manager of OUE C-REIT says it expects the AEI to be accretive to distribution per unit (DPU). “With the estimated capital expenditure of up to approximately S$14 million, the AEI is expected to generate a stabilised return on investment of approximately 10%.” The manager intends to draw down on existing loan facilities to fully fund the AEI, which is not expected to have a material effect on the net tangible assets or aggregate leverage of OUE C-REIT and its subsidiaries for the financial year ending Dec 31.

Shanghai-listed Milkyway Chemical, via its wholly-owned Singapore-incorporated subsidiary, Milkyway International Chemical Supply Chain, has made a firm offer of 22.66 cents per share for LHN Logistics. The offer price is said to be final. Milkway Chemical had previously made a pre-conditional offer offering the same amount for the shares in LHN Logistics on June 4. The deal was conditional upon LHN’s shareholders approving the sale and obtaining written consent from JTC for the change in LHN’s indirect ownership in Hean Nerng Logistics, LHN’s wholly-owned subsidiary. Hean Nerng Logistics owns the property located at 7 Gul Avenue. The offer comes after both conditions were fulfilled on July 31.


PayPal reported adj. earnings (US$1.16) and revenue (US$7.3bn) for the second quarter that was in line with analysts’ estimates. However, its shares fell 7 per cent in extended trading on Wednesday as investors were disappointed by the payments firm’s quarterly operating margin miss (adj. operating margin 21.4% vs est. 22%), which were mainly due to an increase in loans provisions. On the flip side, Total Active Accounts remained flat, with Total Payments Volume (TPV) growth of 11% YoY continuing to reflect resiliency in consumer spending. The company guided to US$7.4bn in revenue for 3Q23e (8% YoY), with adj. earnings of US$1.23 (14% YoY).

Jonathan Woo
Senior Research Analyst

Shopify shares were little changed after the close as the company reported better-than-expected sales for 2Q23. The ecommerce infrastructure company reported Gross Merchandise Volume (GMV) up 17% YoY to US$55bn, an increase of US$8.2bn over the second quarter of 2022. Revenue increased 31% YoY to US$1.7bn, vs est. US$1.6bn, while adj. earnings was US$0.14 vs est. US$0.06. For the 3Q23e, Shopify is forecasting revenue to grow at a low-20% rate YoY, with Gross margin expected to be 2-3% higher than 2Q23 gross margin of 49.3%.

Jonathan Woo
Senior Research Analyst

CVS Health on Wednesday reported second-quarter earnings and revenue that beat expectations, as the company slashes costs and lays off thousands of employees. CVS has implemented a cost-cutting program as it pushes deeper into health-care services in the wake of its US$8 billion acquisition of Signify Health and its US$10.6 billion purchase of Oak Street Health. Part of that effort calls for cutting 5,000 jobs. Earnings per share came in at US$2.21 adjusted, vs. US$2.11 expected while revenue was US$88.9 billion, vs. US$86.5 billion expected. The health-care giant posted net income of US$1.91 billion for the quarter, or US$1.48 per share, a 37% decline from the same period in 2022 when CVS reported net income of US$3.04 billion, or US$2.29 per share. CVS maintained its full-year adjusted earnings guidance of US$8.50 to US$8.70 per share, after slashing its projections by 20 cents last quarter due to costs associated with its recent acquisitions.

US ADP private payrolls increased more than expected in July, pointing to continued labor market resilience that could shield the economy from a recession. Private payrolls rose by 324,000 jobs last month, the ADP National Employment report showed on Wednesday. Data for June was revised lower to show 455,000 jobs added instead of the previously reported 497,000. Economists polled had forecast private employment would increase by 189,000.

Qualcomm reported third-quarter earnings on Wednesday that beat Wall Street expectations, but revenue and guidance for the fourth quarter came up short. Earnings was US$1.87 per share, adjusted, versus US$1.81 per share expected by consensus estimates while revenue came in at US$8.44 billion, adjusted, versus US$8.5 billion expected. Qualcomm said it expected earnings of between US$1.80 and US$2 per share on between US$8.1 billion and US$8.9 billion in sales in the fourth quarter, short of consensus expectations of US$1.91 in earnings on US$8.7 billion in revenue. Net income during the quarter fell to US$1.8 billion, or US$1.60 per share, a staggering 52% drop from the US$3.73 billion, or US$3.29 per share, reported a year earlier.

Unity Software Inc. raised its annual forecast and posted a narrower-than-expected loss. The company reported a second-quarter loss of US$201.2 million, or 51 cents a share, compared with US$205.8 million, or 69 cents a share, in the year-ago period. Unity did not readily break out an adjusted earnings-per-share figure. Revenue rose to US$533.5 million from US$297 million in the year-ago quarter. Analysts had forecast a second-quarter loss of 62 cents a share, adjusted earnings of 8 cents a share, and revenue of US$518 million for the second quarter. Unity forecast revenue of US$540 million to US$550 million for the third quarter, because of a flat game ads market and a continued soft market in China. For the year, Unity increased the low end of its annual outlook and now forecasts revenue of US$2.12 billion to US$2.2 billion for the year.

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


Raffles Medical Group Ltd. – Margins still at record levels

Recommendation: BUY (Maintained); TP: S$1.76

Last Done: S$1.36; Analyst: Paul Chew

– 1H23 revenue and PATMI were within expectation at 49%/42% of our estimates. The jump in healthcare services earnings was higher than expected. PATMI was up a modest 0.5% YoY to S$59mn.

– Revenue for healthcare service was lower due to the absence of COVID-19-related services at the clinics. Hospital revenue is boosted by the return of foreign patients and transitional care facilities. Operating margins remain at record levels of around 21% despite losses in China.

– We maintain our FY23e forecast and BUY recommendation. Our DCF target price of S$1.76 is unchanged. We expect 2H23e earnings will be supported by price increases and a higher volume of foreign patients. However, the reduced contribution of COVID-19 services and lower margins from transitional care facilities (TCF) will place pressure on group margins.

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