Daily Morning Note – 3 May 2019

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YOUR PHILLIP SUMMARY

Stocks trickled lower on Thursday as concerns about economic growth and weak inflation remained on investors’ minds. The Dow Jones Industrial Average lost 0.46%, to 26307.79, while the S&P 500 slipped 0.21%, to 2917.52 and the Nasdaq Composite fell 0.16%, to 8036.77.

Global purchasing manager indexes declined again in April to their weakest level since the second quarter of 2016. All major regional PMIs have now converged around 50, a key line that marks the economy as expanding or contracting. Despite the recent drop, the U.S. PMI is still near the top of the global PMI league table.

Oil prices fell sharply as data released on Wednesday showed that U.S. domestic crude stockpiles surged 9.9 million barrels last week, much higher than expectations for an increase of 900,000 barrels. The inventory now stands at its highest since September 2017.

Tesla stock rose 4.3% after the company announced plans to issue 2.7 million new shares and a $1.35 billion convertible bond, according to filings Thursday with the Securities and Exchange Commission. Investors seem upbeat about the news despite the fact that current shareholders’ ownership stakes would be diluted by the stock sale.



RESEARCH REPORT

China Sunsine Chemical Holdings Ltd – Soft sunshine

Recommendation: BUY, Last Closing Price: S$1.17

Target Price: S$1.43, Analyst: Chen Guangzhi

– ASP fell to a 7-quarter low

– Maintain high margins amid volume growth (Gross profit/tonne dropped 24.8%
YoY or 2.3% QoQ)

– Recent Yancheng accident and the recovery of crude oil price could support raw
material prices

Singapore Banking Monthly – Mortgage weakness persists

Recommendation: Overweight (Maintained); Analyst: Tin Min Ying

– March’s domestic loans growth slowed further to 2.2% YoY. Building and
construction loans

– growth outpaced the industry.

– Mortgage loans growth continues to decelerate to 0.9% YoY.

– Domestic deposits rose 6.4% YoY, boosted by fixed deposit growth of
20.0% YoY, the fastest in almost twelve years. CASA deposits contracted 1.4% YoY.

– April’s 3-month SIBOR and SOR rose slightly by 0.12bp and 4.0bps to
1.946% and 1.973% respectively.

– Maintain OVERWEIGHT for the Singapore Banking Sector.

CapitaLand Limited – A temporal blip in the grand scheme of things

Accumulate (Maintained); TP S$4.00, Last close S$3.53, Analyst: Tara Wong

– 1Q19 revenue and operating PATMI missed our estimates due to lower revenue
from its residential projects in Singapore and a delay in recognition from China
residential.

– Lodging segment shone through – the only segment that reported YoY growth
for both revenue and EBIT. Excluding the one-time gain from the Ascott Raffles
Place divestment, EBIT from this segment would still have risen c.31%.

– Solid sell-through rate for China projects. Full take-up for certain launches in
1Q19, with average high sell-through rate of 90% for all projects launched in
1Q19.

– Expected gradual relaxation of the price caps in China light of the relaxed
residency requirements in certain cities. Recurring income portfolio still strong,
with fund management platform bearing fruits (CREDO I China and CAP I).

– Maintain Accumulate with unchanged TP of S$4.00.

Micro-Mechanics (Holdings) Ltd – Another Miss

Neutral (Downgraded); TP S$1.63, Last close S$1.63, Analyst: Paul Chew

– Revenue and PATMI were below our expectations. We are lowering our FY19e revenue and PATMI by 4% and 11% respectively.

– Revenue was hurt by the overall slowdown in semiconductor demand. Margins suffered as the company expanded its machine capacity and headcount last year.

– In-line with our lower earnings estimate, we have reduced our target price on MMH to S$1.63 (previously S$1.70). We peg our valuations to 15x FY20e PE. This is in-line with back-end semiconductor supply chain valuations. We lowered our recommendation to NEUTRAL.

Ascendas REIT – Rich valuations limit upside

Recommendation: Neutral (Downgraded), Last Done: S$3.01. Target Price: S$2.88, Analyst: Natalie Ong

– 4Q19 and FY19 NPI and DPU in line with our forecast.

– Positive rental reversions across all segments in Singapore.

– Portfolio occupancy increased 40bps YoY despite pre-terminations and non-renewals.

– Downgrade to Neutral due to high valuations; target price of $2.88 unchanged.


BREAKING NEWS

US factory orders post largest increase in seven months. New orders for US-made goods rose by the most in seven months in March amid strong demand for transportation equipment, but rising inventories and a marginal rebound in unfilled orders pointed to slower manufacturing activity. Factory goods orders rebounded 1.9 per cent, also boosted by orders for computers and electronic products, the Commerce Department said on Thursday. That was the largest rise since August 2018. Data for February was revised up to show factory orders slipping 0.3 per cent instead of falling 0.5 per cent as previously reported.

US Q1 productivity rise fastest since 2014; labour costs fall. The Labour Department said on Thursday nonfarm productivity, which measures hourly output per worker, increased at a 3.6 per cent annualised rate in the last quarter. That was the strongest pace since the third quarter of 2014. Data for the fourth quarter was revised down to show productivity rising at a pace of 1.3 per cent instead of the previously reported 1.9 per cent rate.

US weekly jobless claims unchanged last week. The number of Americans filing applications for unemployment benefits was unchanged at higher levels last week, but the trend remained consistent with tightening labour market conditions. Initial claims for state unemployment benefits were flat at a seasonally adjusted 230,000 for the week ended April 27, the Labour Department said on Thursday. Claims surged 37,000 in the prior week, which was the largest rise since Sept 2017.

Oil drops nearly 3% on oversupply worries. Oil plunged Thursday, with US crude dropping almost 3 per cent as the market grappled with oversupply fears as increased US sanctions on Iran had more gradual impact than expected and US crude oil inventories rose sharply. US crude settled down US$1.79 or 2.8 per cent at US$61.81 a barrel, heading for its biggest weekly fall since February. Brent crude futures fell US$1.43 a barrel, or 2 per cent to US$70.75.

Sembcorp Marine posts first quarter 2019 net profit of $2 million. In 1Q 2019, Group revenue totalled $811 million, compared with $1.18 billion booked. New contracts secured to-date totalled $175 million, for projects comprising the design and construction of a 12,000 cubic metre LNG bunker vessel as well as repair and modernisation works on 13 cruise ships. The Group net order book stands at $5.77 billion. Excluding Sete Brasil drillships, the net order book is $2.65 billion.

OUE H-Trust posts 6.3% fall in Q1 DPS to 1.18 Singapore cents. Net property income was down by 2.2 per cent to S$27.7 million for the three months to March 31, the manager reported in unaudited financial statements on Thursday. Gross revenue declined by 3 per cent to S$31.7 million, dragged down by lower master lease income from Mandarin Orchard Singapore, which was thrust into the spotlight in late-2018 when a string of severe food poisoning incidents forced the hotel’s main ballroom to close.

Hi-P posts surprise Q1 earnings growth on lower forex costs. Gross profit came in 4.3 per cent lower for the three months to March 31, which was attributed to both price pressures and a turn to lower-margin products compared with the same period the year prior. Still, Hi-P clocked growth on a sharp drop in forex-related expenses, with net profit picking up 5.8 per cent year-on-year to S$10.7 million. Meanwhile, revenue increased by 2 per cent to S$286.8 million, which the company said was “despite challenging market conditions”.

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

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