DAILY MORNING NOTE | 3 November 2022

Singapore shares closed higher on Wednesday (Nov 2) on late buying after spending all day underwater following overnight losses on Wall Street. Stronger-than-expected jobs data from the world’s largest economy dimmed some hope of a dovish pivot by the Federal Reserve at its latest meeting. The Straits Times Index (STI) advanced 10.63 points or 0.3 per cent to 3,141.13 to log its seventh straight day of gains. For much of the day however, it appeared as if its six-day rally had run out of steam as caution was thick in the air ahead of the Fed rate hike outcome. Japan posted losses, while most key bourses across the region from Hong Kong and China to Taiwan, Malaysia, South Korea and Australia logged gains. Market players have “relied heavily” on US labour market figures to show easing inflationary pressures, but with the stronger demand from a jump in job openings, the expectation for a pause on aggressive rate hikes in December has softened. This is because the robust numbers could provide the Fed with further ammunition to stay on a hawkish course, said Phillip Securities in a note on Wednesday. On the local bourse, some 1.55 billion securities worth S$1.19 billion were traded. Gainers outpaced losers, with 271 counters up and 216 down. Geo Energy Resources was the day’s fourth most active counter with some 25 million shares traded. The coal miner gained S$0.01 or 2.5 per cent to S$0.405, partly owing to interest on the counter following an announcement by Singapore-listed peer Golden Energy and Resources on Tuesday (Nov 1) that it was looking to restructure or exit the energy coal business.

Wall Street stocks finished sharply lower Wednesday after the Federal Reserve announced another big interest rate hike and signaled more increases ahead. Major US indices lost more than 1.5 per cent following a press conference with Fed Chair Jerome Powell that observers characterised as more hawkish than expected. Stocks had initially rallied after the Fed’s 1800 GMT statement, but gave back those gains during the press conference and fell further in the final hour of trading. The Dow Jones Industrial Average fell 1.6 per cent to 32,147.76. The broad-based S&P 500 dropped 2.5 per cent to 3,759.69, while the tech-rich Nasdaq Composite Index shed 3.4 per cent to 10,524.79. The US central bank, as expected, raised the benchmark borrowing rate by 0.75 percentage point. But markets cheered a tweak in the Fed’s language to the effect that the US central bank would assess the “cumulative” effect of its monetary policy moves. Investors viewed the statement as corroborating its hope that the Fed could undertake smaller hikes in December and at future meetings. But major indices tumbled into the red during the press conference when Powell said it was “very premature” to discuss pausing rate increases and that he didn’t think the body had “overtightened.” Among individual companies, Boeing gained 2.8 per cent as executives outlined a plan to return to financial strenth in the 2025-26 timeframe after a lengthy slump due to the 737 MAX and Covid-19 crises. Airbnb sank 13.4 per cent as disappointment in the home-rental company’s fourth-quarter outlook spurred a selloff after earnings topped estimates.

Top gainers & losers



DBS’ 3Q2022 results beat expectations with net profit of S$2.24bn vs consensus estimate of S$1.96bn. Bulk of the beat was from stronger than expected net interest income of S$3.02bn (+44% YoY) and net interest margin growth to 1.90% (+47bps YoY). More details to follow after 11.30am analyst call.

OCBC is to report their 3Q2022 results on Friday, 4th Nov 2022, morning. Consensus estimates for 3Q22 has forecasted net income to grow by 21% YoY to S$1.48bn, backed by net interest income growing 22% YoY to S$1.78bn and NIM continuing to improve to 1.73% (3Q21: 1.52%). Non-interest income is expected to improve by 6% YoY to S$1.16bn in 3Q22.Provisions are expected to increase to S$329.7mn (3Q21: S$163mn).

Following an offer of S$0.37 per share in cash made in September to take Singapore Medical Group (SMG), an investment vehicle owned by the top executives of the company have now raised the offer price to S$0.40 per share or one new share in the offeror. The new offer of represents an increase of approximately 8.1 per cent or S$0.03 over the initial cash consideration of S$0.37, and a premium ranging between 25.4 and 28.6 per cent over the volume-weighted average price per share over the past 12 months, the group noted in a bourse filing on Wednesday (Nov 2). It also represents a premium of approximately 16.8 per cent over the net asset value, and 357.1 per cent over the net tangible asset value per share as of Dec 31, 2021, it added. The offeror does not intend to revise the offer, but reserves right to do so in a competitive situation. Shareholders who have accepted the earlier cash consideration are entitled to the revised final offer price, subject to the offer becoming unconditional, the filing noted. Called TLW Success, the investment vehicle is equally-owned by SMG’s non-executive chairman Tony Tan Choon Keat, chief executive officer Beng Teck Liang and executive director Wong Seng Weng. The offer has been raised in appreciation of shareholders’ continued support and also in view of the prevailing market conditions and business environment, noted Beng. This increased offer price and related costs will not unduly constrain the operations of the company and it can continue to be managed prudently after the privatisation is successfully achieved, he added.

Luxury watch retailer The Hour Glass on Wednesday (Nov 2) reported a 35 per cent jump in net profit for the six months ended Sep 30 to S$84.6 million, compared with the same period last year. Revenue rose 18 per cent in the half year to S$555.5 million, compared with the year-ago period, the mainboard-listed company’s interim financial statement showed. Costs and expenses also increased by 15 per cent to S$466.7 million in H1. The company noted that the higher operating expenses were due to increased staff costs, rental expenses and advertising and promotion activities. Earnings per share in H1 was 12.58 cents, a 41 per cent jump from the corresponding period last year. The company has approved an interim dividend of 2 cents per ordinary share for H1. Although The Hour Glass expects to continue to be profitable in H2 and for the full financial year, it said geopolitical factors may affect buyer sentiment. The Hour Glass shares rose S$0.01, or 0.51 per cent, to close at S$1.97 on Wednesday, ahead of its announcement.

Nanofilm Technologies, which specialises in advanced materials and coatings, on Wednesday (Nov 2) reported a revenue growth of 10 per cent for the nine months ended Sep 30, compared to the same period last year. This is despite the challenging operating environment resulting from macroeconomic headwinds, supply-chain disruptions and a slowdown in customers’ capital investment, the mainboard-listed company said in exchange filings. “While the near-term operating environment remains challenging, the group is taking various revenues and operating cost optimisation measures to cushion the impact,” it said. To do so, the company has identified several key strategic areas it will focus on. The first is an expansion of production facilities in “strategic locations”. Nanofilm said this includes its plans to set up a second production facility on a 40,000 square metre plot in Hanoi, near its existing one in Tan Truong Industrial Zone. The acquisition of the land-use rights is expected to conclude in the first quarter of next year. Nanofilm is also looking into expanding its business in green energy as well as hydrogen fuel. It added that it will continue its investment in research and development to strengthen its deep-tech platform and is expected to maintain its commitment to expend more than 5 per cent of its revenue on this. These are expected to deliver growth in the three key end-markets of consumer, industrial and new energy, Nanofilm said. It is also expected to deliver its offerings through multiple business models such as equipment, coating as a service, components and value chain integration. Overall, the company expects these efforts to drive its revenue to S$500 million and its profit to S$100 million by 2025. Nanofilm reported a net profit of S$18.8 million in the first half year ended Jun 30, up 5.1 per cent from the corresponding period the year before. Its revenue for the same six-month period was S$111.3 million, 15.2 per cent higher than the year-ago period. Nanofilm shares closed at S$1.79 on Wednesday, down S$0.08 or 4.28 per cent from the day before.

Fibre network infrastructure provider NetLink NBN Trust on Wednesday (Nov 2) reported a 36.1 per cent jump in net profit to S$54.6 million for the half year ended Sep 30, compared to the same period last year. The jump in net profit came despite a slower 6.2 per cent rise in revenue to S$199.6 million in H1, compared to the year-ago period, NetLink’s interim financial statements showed. This was due to significantly lower operating expenses in H1, the company noted. In H1 FY22, there was a S$12.4 million remeasurement loss due to change in rental rates upon the renewal of its central office lease agreements. At the same time, there were higher ancillary project revenue, connections revenue and co-location and installation-related revenue, all of which helped to offset lower central office revenue, the company said. Residential connections remained the key contributor to NetLink’s overall revenue, accounting for 61 per cent of total revenue. However, this segment recorded a rise in revenue of only 1.4 per cent in H1, compared to the same period last year. Meanwhile, revenue from ancillary projects jumped 157 per cent – the largest increase – to S$11.8 million due to more diversion projects being completed, the company said. NetLink reported a distribution per unit of 2.62 Singapore cents for H1, an increase of 2.3 per cent from the same period last year. NetLink shares closed at S$0.865 on Wednesday, down S$0.005 or 0.6 per cent.


The Federal Reserve lifted interest rates by 0.75 percentage point to combat inflation and signaled plans to keep raising them, though possibly in smaller increments and to higher levels than previously anticipated. Fed Chairman Jerome Powell said central bank officials would contemplate a smaller rate increase at their next meeting in December but he also cautioned that they might raise borrowing costs next year more than they have projected. “The question of when to moderate the pace of increases is now much less important than the question of how high to raise rates and how long to keep monetary policy restrictive,” he said at a news conference Wednesday. Mr. Powell also warned that reducing the size of rate increases didn’t mean the Fed thought it was close to pivoting away from raising rates. “It is very premature to be thinking about pausing,” said Mr. Powell. “We think we have a ways to go.” Stocks fell, with the S&P 500 down 2.5%. Bond yields were little changed, with yields on the benchmark 10-year Treasury note rising to 4.059% from 4.052% on Tuesday. The increase approved Wednesday lifts the Fed’s benchmark federal-funds rate to a range between 3.75% and 4%. At their September meeting, most officials projected that they would need to raise it to around 4.6% early next year. Fed officials didn’t release new rate projections Wednesday. Mr. Powell said that if they had, they would have been higher given recent strength in the labor market and high inflation readings. A higher path for interest rates suggests a greater risk of a recession, he added. While Mr. Powell said he didn’t think the Fed had raised interest rates too much, he repeated his view that it would be appropriate for the central bank to err on the side of overdoing it rather than underdoing it because he saw a bigger cost for the economy in allowing inflation to become entrenched. The latest rate increase will bring the fed-funds rate to a level last seen in the first three weeks of 2008, as the economy was sliding into a deep recession and before the central bank accelerated rate cuts as a global financial crisis was unfolding. Fed rate increases this year have hit asset prices and are causing a significant slowdown in rate-sensitive sectors of the economy such as housing. The run-up in yields on the 10-year Treasury—it stood at just 1.6% in January—has pulled down the benchmark Bloomberg U.S. Aggregate bond index by over 15% on the year. The 10-year yield is up over 1.4 percentage points since August, its largest three-month gain since 1984. The average 30-year fixed mortgage rate in October rose above 7% for the first time in years. Before this week’s meeting, some officials had begun signaling their desire both to slow the pace of increases soon and to potentially stop raising rates early next year—to see how their moves this year slow the economy . The Fed’s policy statement released Wednesday pointed to how rate rises slow economic activity and inflation with a lag. While the central bank will need to see evidence that inflation is coming down decisively, Mr. Powell said he had never thought that several months of slower inflation data was “the appropriate test for slowing the pace of increases.” His comments opened the door to slowing rate rises as soon as December, though he said no decisions had been reached. He also said the Fed was not close to stopping rate rises and holding rates steady for a while. Data released since the Fed’s September meeting have provided a mixed picture of the economy. While domestic demand has slowed and the housing market is entering a sharp downturn, the job market has remained strong and inflation pressures have stayed elevated. Recent earnings reports have shown strong consumer demand and pricing increases. Inflation pressures have broadened despite some signs of potential relief. Commodity prices have fallen. Easing supply-chain bottlenecks could lead to slower increases or outright declines in the prices of goods. Home prices are falling, and rent growth has slowed. But the strong job market, a generous savings cushion boosted by pandemic relief, and heady gains in asset prices over the past few years could keep consumer spending robust, giving businesses more power to keep raising prices. Fed officials are also nervous that tight labor markets could fuel persistent wage growth that boosts prices in the labor-intensive services sector. That could keep prices rising on everything from haircuts to car repairs to hotel stays even as prices fall for cars, furniture, and other goods where they surged last year.

Treasury yields swung wildly Wednesday as traders tried to decipher the Federal Reserve’s message on its tightening path after the central bank approved another big rate hike. The yield on the 10-year Treasury last traded roughly 3 basis points higher at 4.086% after falling below 4% earlier. The policy-sensitive 2-year Treasury yield last traded 7 basis points higher at 4.613%. Yields and prices have an inverted relationship, with one basis point equaling 0.01%. Bond yields initially dropped sharply after the Fed’s new statement hinted at a possible policy change. However, Fed Chairman Jerome Powell said in a press conference that terminal rate will still be higher than anticipated. The comment caused yields to roll over. Powell added that the time to slow down tightening may come as soon as the next meeting or the one after that. Powell said it was “premature” to talk about pausing hikes.

Shares of Airbnb fell more than 13% Wednesday, a day after the company released third-quarter earnings that beat Wall Street’s estimates but fell short on fourth-quarter guidance. Airbnb beat on top and bottom lines in its third quarter. The company posted revenue of $2.9 billion, up 29% year-over-year for its strongest quarter ever, and topped analysts’ estimates of $2.8 billion. The revenue increase was driven by stable growth in the Nights and Experiences booked and elevated average daily rates. But Airbnb provided fourth-quarter revenue guidance of $1.80 billion and $1.88 billion, below the midpoint of $1.85 billion as expected by analysts. Airbnb said to “expect a continued, albeit choppy, recovery of cross-border travel to be a further tailwind to future results” as countries around the world continue to recover from Covid lockdowns and grapple with high levels of inflation and rising interest rates. Airbnb also cautioned that the strong dollar will lower its international average daily rate. Airbnb benefited from booming travel demand and said in a release that it has seen growth in the number of new hosts on its platform.

Qualcomm shares fell 7% in extended trading on Wednesday after the chipmaker reported in-line fiscal fourth – quarter earning but offered poor first-quarter guidance. Qualcomm also said it implemented a hiring freeze at the start of the current quarter. EPS of $3.13 per share, adjusted, vs. consensus estimates of $3.13, while revenue came in at $11.39 billion, adjusted, vs. $11.37 billion as expected by analysts. Overall revenue grew 22% year-over-year in the quarter that ended Sept. 25, according to a statement. With respect to guidance, Qualcomm called for fiscal first-quarter adjusted earnings of $2.25 to $2.45 per share on $9.2 billion to $10 billion in revenue. Analysts polled by Refinitiv had expected earnings per share of $3.42 and revenue of $12.02 billion. Revenue in Qualcomm CDMA Technologies, or QCT category, which includes smartphone chips, radio frequency front-end components, automotive chips and internet of things devices, totaled $9.9 billion. That was up 28%, and it’s more than the $9.87 billion consensus among analysts. Within the QCT segment, revenue from mobile handsets came to $6.57 billion, up 40% and a hair below the consensus of $6.59 billion. Automotive chips grew 58% on an annual basis to $427 million. Qualcomm’s IoT business, which makes low-power chips for connected devices, grew 24% to $1.92 billion. RF front-end chips fell 20% to $992 million. The Qualcomm Technology Licensing, or QTL, the other major Qualcomm unit that’s comprised of licensing fees related to 5G and other technologies the company makes, produced $1.44 billion in revenue, which was up 8% but lower than the $1.58 billion consensus. During the quarter, Qualcomm said it had extended a patent-licensing agreement with Samsung through 2030. Notwithstanding the after-hours move, Qualcomm shares are down 37% so far this year, while the broader S&P 500 index is down 20% over the same period.

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


Technical Pulse: Geo Energy Resources Ltd

Analyst: Zane Aw

Recommendation Technical BUY

Market buy: 0.405 Stop loss: 0.385 Take profit: 0.495

Geo Energy Resources Ltd (SGX: RE4)A potential breakout of a bullish cup & handle formation to retest the resistance zone at 0.460-0.500.

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