Daily Morning Note – 3 May 2021


Stocks in Asia are set for a muted start to the week with some major markets closed for a holiday and inflation concerns resurfacing. The dollar slipped versus major peers. Australian futures pointed lower, while those in Hong Kong also fell earlier. Markets in Japan and China are shut for holidays. U.S. stocks dropped from a record Friday, with economic data showing potential inflation pressures and hawkish remarks from a Federal Reserve official. Still, the S&P 500 Index capped its biggest monthly rally since November.


SG News

Based on Floatel International’s financial results for Q4 2020 and Q1 2021, the net financial impact on Keppel Corp will be around S$187 million, the mainboard-listed conglomerate said on Friday night. As a result of equity accounting, the carrying value of Keppel Corporation’s investment in offshore vessel company Floatel will thus almost triple to about S$284 million, from some S$96 million as at Dec 31, 2020.

Tuan Sing Holdings’ 44.5 per cent-owned associated company Gultech China has agreed to sell 13 per cent of the shares it holds in a printed circuit board (PCB) supplier, which is evaluating a possible listing in China. The transaction price of 435 million yuan (S$89 million) implies a valuation of about 3.35 billion yuan for the PCB firm, Gultech (Jiangsu) Electronics (GJE), Tuan Sing: T24 0% said in a filing released on Sunday.

On Thursday, YZJ had announced an 89 per cent increase in net profit for Q1 2021 – to 761.7 million yuan (S$156.1 million) from 403.8 million yuan in the corresponding period of the year before. YZJ was able to secure orders for 54 vessels worth US$1.8 billion, bringing its outstanding order book to US$6.6 billion.

UOB is considering downsizing its office space as hybrid work arrangements gain momentum, but the bank’s chief executive officer and deputy chairman Wee Ee Cheong does not expect too significant a reduction in real estate.

DBS’s latest set of results marks the first time in the bank’s history that its quarterly net profit crossed the S$2 billion mark. In its pre-market filing on Friday, Singapore’s largest bank attributed its record first-quarter performance mainly to sustained inflows into current and savings accounts, as well as broad-based loan growth. The bank also declared an interim dividend of 18 Singapore cents per share.

US News

Exxon Mobil Corp. reported Friday a first-quarter adjusted profit and revenue that rose above expectations, boosted by higher commodity prices and actions to cut costs. The oil and gas giant’s stock slipped 0.5% in premarket trading, putting it on track to snap a five-day win streak in which it climbed 6.6%. The company swung to net income of $2.73 billion, or 64 cents a share, from a loss of $610 million, or 14 cents a share, in the year-ago period.

Berkshire Hathaway’s operating earnings rebounded as the conglomerate’s businesses recovered from the pandemic hit. Chairman Warren Buffett kept buying back Berkshire shares aggressively in the first quarter, but at a slightly slower pace. Berkshire reported operating income of $7.018 billion in the first quarter, up 20% from $5.871 billion in the same period a year ago. The conglomerate’s hodge-podge of businesses including insurance, transportation, utility, retail and manufacturing saw signs of a recovery amid the economy reopening.

Shares of Colgate-Palmolive Co. edged up 0.2% in premarket trading Friday, after the oral, person and home care and pet nutrition company reported first-quarter profit and sales that topped expectations and provided an in-line full-year outlook. Net income fell to $681 million, or 80 cents a share, from $715 million, or 83 cents a share, in the year-ago period.

Illinois Tool Works Inc. reported Friday profit and revenue that topped forecasts, boosted its full-year outlook and said it plans to buy back $1 billion of its stock this year. The multi-industry manufacturer’s stock was still inactive in premarket trading. Net income rose to $671 million, or $2.11 a share, from $566 million, or $1.77 a share, in the year-ago period.

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


Venture Corporation Ltd – Another type of disruption

Recommendation: NEUTRAL (Maintained); TP S$19.20, Last close: S$20.15; Analyst Paul Chew

– 1Q21 revenue and PATMI rose 2% and 8% YoY respectively. Profit growth is below our forecast of +17%. Net cash was a record S$989mn.

– We had expected a stronger rebound from last year’s low base caused by pandemic disruptions.

– Order pipeline is strong but fulfilment is affected by short supply of parts and components.

– Maintain NEUTRAL. Our target price is unchanged at 16x FY21e P/E, its 5-year average P/E. We are leaving forecasts intact, optimistic that order momentum will build up in the rest of the year, notably for life science, medtech devices and consumer wellness.

Micro-Mechanics (Holdings) Ltd – Tad below expectations

Recommendation: NEUTRAL (Maintained), Last Done: S$3.33

Target Price: S$3.02, Analyst: Paul Chew

– 3Q21 revenue and net profit were below, with 9MFY21 revenue/PATMI at 77%/64% of our FY21 forecasts.

– Revenue was slower than expected, we believe due to semiconductor supply disruptions in several geographies and sectors.

– MMH is more reliant on volume than semiconductor price appreciation. Huge industry expansion to ease supply shortages at the front end will have a lagged impact on MMH.

– We lower FY21e earnings by 10% and gross margins from 56.5% to 55% for higher operating expenses. This lowers our target price to S$3.02 from S$3.35, still at 21x FY21e P/E ex-cash, in line with peers. NEUTRAL rating unchanged.

DBS Group Holdings – Inflection point

Recommendation: Accumulate (Maintain), Last Done: S$29.91

Target price: S$31.40, Analyst: Terence Chua

– 1Q21 earnings above, at 34.5% of our FY21e forecast. The strong beat came from net fee income and a S$190mn reversal in GPs.

– NIM fell 37bps to 1.49%, at the upper-end of guidance. Loan growth of 7% YoY cushioned NII. NIM was unchanged from last quarter.

– Fees and commissions surged 15% YoY, rising above pre-COVID levels.

– Credit cost stabilised, resulting in a general allowance write-back of S$190mn and SPs returning to pre-pandemic levels of S$200mn or 21 basis points. Total allowances in FY21e likely to be below S$1bn.

– Maintain ACCUMULATE with higher GGM TP of S$31.40, up from S$29.50. We raise FY21e earnings by 5.6% as we lower our allowance estimates and crank up our fee income estimates. We now assume 1.36x FY21e P/BV in our GGM valuation, up from 1.31x.

First Ship Lease Trust – Dividend support

Recommendation: ACCUMULATE (Maintained); TP: S$0.03

Last Done: S$0.081; Analyst: Vivian Ye

– Profit after tax declined 95% YoY, on lower revenue due to weak tanker market and smaller fleet. 1Q21 net profit roughly in line, at 28.4% of our FY21e forecast.

– 1Q21 DPU of 2.00 US cents forms 41.8% of our forecast. Operating cash flow was US$3.5mn (1Q20: US$16.6mn).

– Maintain ACCUMULATE with lower TP of S$0.03 from S$0.05. We halve FY21e net profits due to subdued tanker market. Our TP remains pegged to 0.9x FY21e P/BV, the industry average. Global tanker market is facing lower demand and higher supply. Dividend support, however, is expected from potential payout of all its FY21e operating cash flow of US$14.5mn together with net sales proceeds from recent disposal of three product tankers worth S$55mn.

SG Bonds Weekly – Week 18

Credit Analyst: Timothy Ang

– China Huarong took a 3-notch Fitch downgrade to BBB last Monday. ICBC also supported the company by extending a loan for the repayment of S$600mn bonds that matured last Tuesday.

– Demand remained healthy last week with book coverage ratios much higher at 6.4x.

– 4 outstanding mandates remain from last two weeks

Technical Analysis: US market outlook – Sell in May and Go Away?

Analyst: Chua Wei Ren

– The Federal Reserve remain Dovish and remain rates unchanged at 0.25%. Jerome Powell acknowledge that the economy is picking up to speed with the ongoing vaccination process. However, he shut the door on any idea of rate hike until the economy and inflation rate is stable.

– U.S Personal income soars with the aid of the stimulus package and change in attitude towards spending has return to pre-pandemic levels.

– U.S GDP grew 6.4% misses the estimated 6.5% growth rate QoQ. However, the growth rate exceeded the post GFC levels.

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