Daily Morning Note – 30 August 2021

Dear valued client,

Wall Street ended the week with new records after Fed Chair Jerome Powell signalled the central bank could slow its stimulus by the end of the year but is in no rush to raise rates.

The broad-based S&P 500 advanced 0.9 per cent to close at 4,509.37 – its first close over the 4,500 mark – and the tech-rich Nasdaq Composite Index jumped 1.2 per cent to 15,129.50. Both had retreated on Thursday after multiple records.

The benchmark Dow Jones Industrial Average gained 0.7 per cent to end at 35,455.80.

The Federal Reserve’s stimulus has helped push equities steadily higher in recent months, and in his highly anticipated speech to the annual Jackson Hole central banking symposium, Mr Powell highlighted the Fed’s focus on waiting for the labour market to improve further.

While rising infections from the Delta variant of Covid-19 remain a risk, the Fed chief said the economy should continue to improve and policymakers could start the process of tapering its massive bond purchases by the end of the year.

BREAKING NEWS

UOB on Saturday announced three changes to its board of directors, as part of its ongoing board renewal. The bank announced the appointment of Tracey Woon as an independent director and member of its audit committee and board risk management committee with effect from Sept 1. Ms Woon, 65, is currently a director at Singapore Press Holdings, which publishes The Business Times, and is a member of the Securities Industry Council and the Listings Advisory Committee of the Singapore Exchange (SGX). She is also director of the National University Health System and holds roles at bodies such as MOH Holdings, the holding company for Singapore’s public healthcare institutions.

Hong Leong Asia (HLA) – the trade and industry arm of the Hong Leong group – is forking out some S$68.1 million to increase its stake in Mainboard-listed steel-reinforcement solutions provider BRC Asia to 20 per cent through two transactions. The first transaction involves Hong Leong Asia Investments – a wholly-owned subsidiary of HLA – which on Aug 28 agreed to subscribe to about 31 million placement shares of BRC Asia at an issue price of S$1.48 apiece. This amounts to a total price of some S$45.9 million. The issue price was arrived at after negotiations between both parties on a willing-buyer and willing-seller basis, and represents a discount of about 2.06 per cent to the volume weighted average price of S$1.5111 per share for trades executed on the Singapore Exchange for the full market day on Aug 27. This transaction will require the approval of BRC Asia’s shareholders at an extraordinary general meeting that will be convened. It was however noted that Esteel Enterprise, which currently owns a 68.96 per cent stake in BRC Asia, has given an undertaking to vote in favour of the transaction.

Semiconductor play Micro-Mechanics Holdings on Saturday reported net profit of S$4.8 million for the fourth fiscal quarter ended June, up 21.4 per cent from net profit of S$3.9 million in the corresponding period last year. This pushed the company’s earnings for FY2021 to S$18.1 million, 23.3 per cent higher than earnings of S$14.7 million in FY2020. Earnings per share (EPS) for Q4 rose to 3.44 Singapore cents from 2.83 cents in the year-ago period, while EPS for FY2021 was up to 12.99 cents from 10.54 cents in FY2020. The higher net profit for Q4 was primarily attributable to a 16.9 per cent increase in revenue to a quarterly record-high of S$19.1 million from S$16.4 million in the year-ago period, on the back of “broad-based sales growth” across a number of the group’s markets. The only exceptions were Taiwan and Japan.

Mainboard-listed food and beverage (F&B) player Sakae Holdings posted net profit of S$1.5 million for the fourth fiscal quarter ended June, down 43.5 per cent from net profit of S$2.6 million in the corresponding quarter last year. The decline in earnings was mainly due to a 23 per cent year-on-year fall in revenue for the quarter to S$4.3 million from S$5.5 million amid the Covid-19 restrictions that were implemented across Singapore and Malaysia. Cost of sales for the quarter was down 45.2 per cent to S$1.8 million. Resultantly, gross profit was up 8.4 per cent to S$2.5 million. Sakae has recommended a final dividend of 1.2 Singapore cents per ordinary share for FY2021, versus no dividend last year. The dividend is subject to shareholder approval at the forthcoming annual general meeting, and the payout date will be determined at a later date.

US News

The US Dollar slid on Friday after Federal Reserve Chair Jerome Powell indicated in a highly anticipated speech that the US central bank could start tapering its massive support to the economy could start by year’s end, which was not as fast as many in the market had assumed. Mr Powell said there had been clear progress toward maximum employment and he believed that if the US economy improved as anticipated, “it could be appropriate to start reducing the pace of asset purchases this year.” But Mr Powell told the Fed’s annual Jackson Hole symposium the timing and pace of tapering should not be construed as a signal for when interest rates will begin to rise. The dollar index, which measures the greenback’s performance against a basket of six major currencies, fell 0.4 per cent to 92.6760.

Rocketing US house price rises will accelerate more slowly in 2022, halving this year’s double-digit pace but still climbing much faster than experts predicted three months ago, according to a Reuters poll of analysts who said homes would get even less affordable. Record low interest rates and homeworkers seeking bigger living spaces have ratcheted up housing demand at a time when affordable homes are scarce. Other polls earlier this month also showed house prices in Australia, New Zealand, and Canada would also rise in double digits this year and then slow in 2022.

Opec and its allies are expected to press on with their planned revival of oil production when they meet next week, as prices bounce back from their August stumble. The coalition led by Saudi Arabia and Russia is gradually restoring the vast amount of crude production halted during the pandemic, and will probably ratify the next monthly instalment when it gathers on Sept 1, according to a Bloomberg survey of traders and analysts. Several Opec+ delegates privately predict the same outcome. Crude markets faltered earlier this month as the resurgent pandemic threatened demand in China and the US. But prices have since recovered after fuel use proved resilient to the latest coronavirus wave, giving the Organization of Petroleum Exporting Countries and its partners more breathing space.

Gold rose the most in two weeks after Federal Reserve Chairman Jerome Powell said tapering may be appropriate this year, easing concern that policy makers will soon tighten monetary policy. The central bank could begin reducing its monthly bond purchases this year, though it won’t be in a hurry to begin raising interest rates thereafter, Mr Powell said Friday in a virtual speech at the Kansas City Fed’s annual Jackson Hole symposium. The dollar and real Treasury yields sank as the Fed Chair spoke, allowing gold to gain past two of its main moving averages.

Hair-care products maker Olaplex Holdings filed for an initial public offering (IPO), the second consumer brand backed by private equity firm Advent International to do so within a few hours. Olaplex in its filing Friday with the US Securities and Exchange Commission listed the size of the offering as US$100 million, a placeholder that will change when terms of the share sale are set. Earlier Friday, Advent-backed Sovos Brands, the owner of the Italian cuisine brands Rao’s and Michael Angelo’s, made its IPO plans public. Advent was targeting a valuation of at least US$1.5 billion for Olaplex, Bloomberg News reported in June. All of the shares in the IPO will be sold by current investors without the company receiving any of the proceeds. Advent will continue to control company after the listing, according to the filing.

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

TECHNICAL REPORTS

BYD Co Ltd

Recommended Action: Technical BUY

Analyst: Chua Wei Ren

– BYD Co Ltd (HKEX: 1221) Price action and technicals shows a strong continuation of the upside despite prices remaining below the all-time high in January 2021.

– Buy stop: 270.00 Stop loss: 229.40 Take profit 1: 366.76 Take profit 2: 420.00

Li Ning Co Ltd

Recommended Action: Technical BUY

Analyst: Chua Wei Ren

– Li Ning Co Ltd (HKEX: 2331) Price action and technicals point to a continuation of the upside.

– Buy spot: 98.25 Stop loss: 66.65 Take profit 1: 128.76 Take profit 2: 143.00

Paypal Holdings Inc.

Recommended Action: Technical BUY

Analyst: Chua Wei Ren

– PayPal Holdings Inc (US: PYPL) has potentially resumed its sub-bullish wave based on the Elliott wave count and recent technical has indicate a possible bullish reversal in making.

– Buy stop: 280.66 Stop loss: 261.00 Take profit 1: 310.00 Take profit 2: 330.00

>> Read more Technical reports

RESEARCH REPORTS

BRC Asia – Proposed entry of a solid substantial shareholder

Recommendation: Buy (Maintained), Last Done: S$1.52

Target price: S$1.79, Analyst: Terence Chua

– BRC Asia has proposed to issue 31,015,000 new shares (12.7% of outstanding) to Hong Leong Asia Investments at S$1.48 a share in a private placement to raise S$45.9mn.

– Concurrently, Hong Leong Asia Investments will purchase from several vendors an additional 15mn shares at the same price. This is conditional on the placement’s success.

– The proposed placement will strengthen the group’s balance sheet as it navigates out of the current crisis, in our view. Net gearing would have improved from 112% to 83% had the transaction been completed last quarter).

– Maintain BUY and target price of S$1.79. No change to our forecasts pending regulatory and shareholder approval, which we expect to be completed in about six weeks. Our TP remains based on 11x FY22e P/E, a 15% discount to its 10-year average on account of the uncertain environment. Catalysts expected from higher foreign-worker inflows to Singapore.

Koda Ltd – Waiting for resumption

Recommendation: BUY (Maintained). Last Done: S$0.805

TP: S$1.10; Analyst: Vivian Ye

– 2H21 results beat, with FY21 revenue and PATMI at 116%/107% of our forecasts. The outperformance came from higher-than-expected manufacturing sales.

– 2H21 revenue grew 65% YoY while PATMI jumped 20x, from higher export sales, increased contributions from retail and distribution and improved gross margins.

– Maintain BUY with lower TP of S$1.10, down from S$1.32 as we roll over our 7x ex-cash P/E to FY22e. This is at the higher end of its historical 5-year ex-cash P/E. We lower FY22e PATMI by 29% to US$7.0mn. FY22e revenue estimate is largely unchanged but we cut gross margins from 32.0% to 29.5% for Covid-19 production disruptions at Koda’s plants in Vietnam and Malaysia. Catalysts still expected from higher exports to US and increase in production capacity.

NetLink NBN Trust – Fibre connections modestly weaker

Recommendation: ACCUMULATE (Maintained); TP S$1.03

Last close: S$¬¬0.97; Analyst Paul Chew

– 1Q22 revenue and EBITDA within expectations, at 25%/19% of our FY22e forecasts.

– Residential fibre connections increased by 2.3k this quarter, below our annual estimate of 25k. We expect a rebound in the latter part of FY22 with renewed home construction.

– No change in our estimates. ACCUMULATE rating and DCF TP of S$1.03 (WACC 5.9%) unchanged. Yields of 5.2% supported by monthly recurring revenue from more than 2mn fibre connections in homes and businesses. Regulatory review of fibre rates expected in mid-2022, likely implemented at end-2022.

>> Read more research reports


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