DAILY MORNING NOTE | 3 February 2023
Singapore shares fell on Thursday (Feb 2), led by declines in the trio of local banks. The Straits Times Index lost 0.4 per cent or 13.97 points to stand at 3,363.68. Gainers outnumbered losers 333 to 225, after 1.6 billion securities worth S$1.3 billion changed hands. The US concluded its latest Federal Open Market Committee (FOMC) meeting with a 25-basis-point rate hike. While the three local banks’ net-interest margins have gained from higher borrowing costs due to the interest-rate hikes, they were in red for the day amid market expectations that the Federal Reserve would soon end its hiking cycle. Trading in the regional markets was mixed. The Nikkei 225 Index rose 0.2 per cent, the Kospi Composite Index gained 0.8 per cent and the FTSE Bursa Malaysia Index was up 0.3 per cent. The Hang Seng Index fell 0.5 per cent.
Large tech shares soared on Thursday as better-than-expected results from Facebook parent Meta Platforms fueled hopes about forthcoming earnings from Apple and other giants. The tech-rich Nasdaq Composite Index finished up 3.3 per cent at 12,200.82. The Dow Jones Industrial Average dipped 0.1 per cent to 34,053.94, while the broad-based S&P 500 jumped 1.5 per cent to 4,179.76. Shares of Google parent Alphabet and Amazon piled on more than seven per cent, while Apple gained 3.7 per cent in Thursday’s session ahead of earnings releases from all three companies. Investors are hopeful after Meta surged nearly 25 per cent after reporting a smaller drop in annual sales than anticipated, as the company announced that the number of daily users on Facebook hit two billion for the first time.
Singapore’s overall factory activity improved modestly in January but remained in contraction territory for the fifth straight month, lagging behind regional peers. The Purchasing Managers’ Index (PMI) inched up 0.1 point to 49.8 last month, data from the Singapore Institute of Purchasing and Materials Management (SIPMM) showed on Thursday (Feb 2). A reading below 50 indicates contraction from the previous month; one above 50 means growth. Electronics sector PMI edged up 0.2 point to 49.1 in January, marking the sixth consecutive month of contraction. SIPMM attributed both sets of readings to a slower contraction in the key indices of new orders, new exports, factory output and inventory, and in the case of the electronics PMI, employment as well.
Defense and engineering group ST Engineering has acquired the site and assets of an existing shipyard at 55 Gul Road in Singapore from Keppel FELS – a subsidiary of Keppel Corp’s offshore and marine arm – for S$95 million. The group will be using the shipyard for its commercial ship repair business under its marine segment, it said in a bourse filing on Thursday (Feb 2). The assets acquired include three floating docks, existing buildings, workshops, and machinery. The new Gul yard will replace ST Engineering’s existing Tuas shipyard, whose lease is expiring end-2024. The group has another shipyard at Benoi which is mainly for shipbuilding. The Gul yard has a remaining lease until August 2030, which can be extended by another 20 years. The yard is approximately 141,000 square metres (sq m) and has a gross built-up floor area of 74,593 sq m.
Keppel Corporation reported on Thursday (Feb 2) a 40.6 per cent year-on-year decline in net profit for the second half ended December on the back of lower revenue from continuing operations. The group’s net profit for the six months ended Dec 31, 2022 fell to S$429.1 million from S$722.9 million in the corresponding period a year earlier. This translated to earnings per share of S$0.242 for the H2 FY22, down from S$0.397 in H2 FY21. The net profit included discontinued operations, which comprise the results of Keppel Offshore & Marine (O&M), excluding certain out-of-scope assets, and other group adjustments. Excluding discontinued operations, net profit from continuing operations would have fallen 55.2 per cent to S$404.8 million in H2 FY22, down from S$903.9 million in H2 FY21. Revenue from continuing operations in the second half fell 12.3 per cent to S$3.3 billion, from S$3.7 billion in the year-ago period.
Singapore’s clean energy efforts to maximise its solar power potential has made a big leap with the official opening of its massive energy storage system (ESS) of “giant batteries” – the largest of such a facility in South-east Asia – in Jurong Island, which is owned and operated by Sembcorp Industries. The Sembcorp ESS that spans 2 ha of land in the Banyan and Sakra region on Jurong Island. Opened by Sembcorp and the Energy Market Authority (EMA) on Thursday (Feb 2), it is deemed a game-changer for the city-state’s goals to decarbonise its power sector as it aims to tackle the dilemma of weather-led intermittent solar energy. In his speech to officiate the launch, Minister for Manpower and Second Minister for Trade and Industry Tan See Leng said: “With ESS, we can store excess power that is generated during peak production periods, for use at other times.
Nanofilm Technologies said on Thursday (Feb 2) that it expects net profit for its financial year ended Dec 31, 2022 to be around 30 per cent lower year-on-year, with revenue expected to fall 4 per cent. It said in a bourse filing that this was based on a preliminary review of information currently available to the board, including the management accounts of the group. Nanofilm said the percentage decrease in revenue is lower than the decrease in net profit due to one-off costs of around S$2.5 million related to Covid-19 restrictions, a net loss of around S$1.6 million incurred by its subsidiary, Sydrogen Energy, and fixed indirect costs that could not be reduced in tandem with the reduction in revenue.
The closing date for the mandatory cash offer of Chip Eng Seng by chairman Celine Tang and her husband Gordon Tang has been further extended to 5.30 pm on Feb 16. This marks the third extension for the offer’s close after it was previously extended on two occasions to Feb 2 and Jan 19, respectively. As at 6 pm on Feb 1, the offeror has received valid acceptances amounting to 649.5 million shares, translating to about 82.7 per cent of the company. This includes acceptances from the offeror’s concert parties, which amounts to about 386.4 million shares, representing about 49.21 per cent of the company. The total number of shares now owned by the offeror and its concert parties, as well as the valid acceptances of the offer amount to 694.3 million shares, translating to about 88.41 of the company.
The European Central Bank on Thursday confirmed expectations of a 50 basis point interest rate increase, taking its key rate to 2.5%. In a statement, it pledged to “stay the course in raising interest rates significantly at a steady pace” and, in unusually firm language, said it intended to hike by another 50 basis points in March. It said keeping rates at restrictive levels would control price rises by dampening demand. Decisions at future meetings will be data dependent, it added. Markets appeared to take the announcement as a sign that the end of rate rises was in sight, climbing 1.3% on the day. The move follows four hikes in 2022 which brought euro zone rates out of negative territory for the first time since 2014. Euro zone inflation fell for the third straight month in January, flash figures published Wednesday showed, but headline inflation remained high at 8.5%. Core inflation, which excludes energy and food, was flat at 5.2%.
Starbucks on Thursday reported quarterly earnings and revenue that fell short of analysts’ expectations as weak international demand weighed on its results. In China, the company’s second-largest market, transactions at cafes open at least 13 months plunged 28%. During the quarter, the Chinese government relaxed its zero Covid policy, which led to new outbreaks of the virus. Despite weak performance in China, CFO Rachel Ruggeri reiterated the company’s fiscal 2023 outlook. However, Starbucks now expects negative same-store sales growth in China through the fiscal second quarter, followed by a reversal of the trend in the second half of the fiscal year. Shares of the company fell more than 3% in extended trading.
Amazon said revenue in its cloud unit increased by 20% in the fourth quarter, a slower pace than analysts had projected and more sluggish than the 27.5% growth rate in the third quarter. Cloud growth appears to be moderating along with other parts of the technology industry that boomed over the past decade and accelerated in the pandemic, when businesses adopted services that could foster remote work. Amazon Web Services leads the cloud infrastructure market, with almost 39% share in 2021, according to estimates from industry researcher Gartner. Microsoft’s Azure business and Google Cloud are AWS’ top competitors.
Ford reported an annual loss on Thursday following disappointing fourth-quarter earnings that reflected what it called execution problems that marred performance. “We should have done much better last year,” said Ford chief executive Jim Farley. “We left about US$2 billion in profits on the table that were within our control, and we’re going to correct that with improved execution and performance.” Farley did not elaborate on the problems. Automakers have struggled with supply chain problems over the last year in the wake of pandemic-related shortages of semiconductors and other vital parts that have crimped output. Ford reported profits of US$1.3 billion in the quarter ending Dec 31, much below the US$12.3 billion in year-ago period boosted by an accounting gain for Ford’s stake in Rivian. Revenues were up 16.7 per cent to US$44 billion. The fourth quarter profits – which lagged below the company’s prior projection – pushed Ford to a US$2.0 billion loss for all of 2022, compared with profits of $17.9 billion in the prior year.
Source: SGX Masnet, Bloomberg, Channel NewsAsia, Reuters, CNBC, WSJ, The Business Times, PSR
Frasers Centrepoint Trust – The “NEX” acquisition
Recommendation: Accumulate (Maintained), Last Done: S$2.25
Target price: S$2.31, Analyst: Darren Chan
– No financials are provided in this business update. Retail occupancy improved 1.2% YoY to 98.4%. Tenant sales and shopper traffic improved 13.4% and 38.3% YoY respectively.
– Frasers Centrepoint Trust and its sponsor, Frasers Property, announced the joint acquisition of 50% interest in NEX at an agreed property value of S$2,077.8 million on a 100% basis, in line with appraised value.
– Maintain ACCUMULATE, DDM TP (COE 6.90%) lowered from S$2.38 to S$2.31. We trim our FY23e-FY25e DPU estimates by 6-8% after factoring in the NEX acquisition and higher borrowing costs. The current share price implies a FY23e DPU yield of 5.5%.
Keppel Corporation – SMM announce EGM on 16 Feb 2023
Recommendation: BUY (Maintained), Last Done: S$7.64
Target price: S$8.95, Analyst: Terence Chua
– Sembcorp Marine (SMM) will hold an extraordinary general meeting (EGM) on 16 Feb 2023, to vote on its proposed acquisition of Keppel offshore & marine.
– The independent financial adviser (IFA) for the deal saw its terms as fair and reasonable, and had advised the independent directors to recommend shareholders to vote in favour of the deal.
– We believe the better clarity on the deal time-line and future management team will reduce overhang on the stock. The new enlarged Group will also be able to better capitalise on the energy transition.
– Maintain BUY with unchanged SOTP TP of $8.95. We valued the Group based on the four new segments unveiled during Vision 2030 to better reflect the Group’s reporting segments going forward. Our TP translates to about 1.2x FY22e book value, a slight premium to its historical average as the Group’s transformation plans gain traction and ROE expands to 8.8%. Catalysts are expected from approvals obtained for the transaction.
Spotify Technology S.A. – Margin expansion on the horizon
Recommendation : ACCUMULATE (Downgraded); TP: US$128.00, Last Close: US$118.14
Analyst: Jonathan Woo
– 4Q22 revenue/PATMI in line with expectations. FY22 revenue at 98% of our FY22e forecasts, with net loss EUR140mn less than our FY22e forecasts.
– Total MAUs/Premium Subscriptions both beat guidance, up 20%/14% YoY respectively. Premium ARPU was up 3% YoY.
– 25.3% gross margin beat guidance by 0.8%, primarily due to lower content spend. Operating loss ahead of guidance by EUR69mn, expected to improve materially in FY23e.
– We downgrade to ACCUMULATE with a raised DCF target price of US$128.00 (prev. US$111.00) to account for stock price performance. We cut FY23e revenue forecasts by 8% on expected slowing of FX tailwinds, while increasing gross margin assumptions from 26.5% to 26.8%, resulting in a reduction in FY23e net profit by EUR330mn. We maintain a WACC of 7.5% and terminal growth rate of 3%.
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