Daily Morning Note – 30 May 2022
Stocks are set to open with an upswing Monday after US equities chalked their best week since November 2020 as traders debate whether the end of the selloff is near.
Futures rose in Japan and Australia as well as in Hong Kong earlier. US futures ticked higher in early Asian trading. The S&P 500 wiped out its May losses and snapped a string of seven weekly losses as institutional investors rebalanced portfolios into the end of the month. US markets will be closed Monday for a holiday.
The dollar traded within tight ranges versus major currencies and the euro fluctuated as the European Union failed to agree on a revised package of Russian sanctions.
In China, Shanghai offered some tax rebates for companies and allowed all manufacturers to resume operations from June as authorities rolled out scores of policies to revitalize an economy impacted by Covid lockdowns.
Stocks to watch: Nutryfarm International
SG
Nutryfarm International clarified on Sunday (May 29) that it holds its former chief executive officer Cheng Meng personally responsible for 2 settlement agreements relating to a shortfall in delivery of durians. The company issued the clarification in relation to an article by The Business Times on the 2 settlement agreements published on May 27. Nutryfarm’s subsidiary Global Agricapital Thailand (GAT) had entered into 2 settlement agreements amounting to a total of 33.4 million yuan (S$6.8 milion) in relation to a shortfall of durians delivered. “The company holds Cheng Meng personally responsible for the settlement agreements, including the compensation and penalty amounts therein, all economic and financial losses suffered and that will be suffered by the company and the group, and any fiduciary and regulatory breaches as a result of his actions,” Nutryfarm said.
Yamada Green Resources said on Saturday (May 28) that the Singapore Exchange (SGX) has informed the company that it may resume trading on June 1. In March this year, SGX had informed the company that it had no objection to the company’s application for the resumption of trading, subject to certain conditions. The conditions include the appointment of a Singapore-based chief financial officer, with the proposed appointment to be approved by SGX; and for Yamada Resources to perform quarterly reporting, with all financial statements released to be reviewed by the company’s statutory auditor, Foo Kon Tan.
Stamford Land’s net profit shot up 130.7 per cent for the fiscal second half from a year ago on the back of fair-value gains on its investment properties. Net profit for the 6 months ended Mar 31, 2022 stood at S$15.6 million, compared with a net profit of S$6.8 million over the same period a year ago. This was largely due to fair-value gains on investment properties of some S$12.5 million, unaudited financials released by the luxury hotel owner-operator on Friday (May 27) showed. The results translate to earnings per share of 3.83 Singapore cents, against earnings per share of 1.66 cents in the year-ago period.
Catalist-listed nursing operator Econ Healthcare (Asia) sank into the red in the fiscal second half from a year ago after chalking up a S$3.4 million investment loss from selling all of its stake in Crosstec Group Holdings in January. Econ Healthcare had invested around S$4 million of its idle working capital to buy 11.8 million shares in Crosstec, a Hong Kong-listed interior design company, but Crosstec shares nosedived 84 per cent soon after. Net loss for the 6 months ended Mar 31, 2022 stood at S$1.26 million, reversing from a net profit of S$2 million posted in the same period a year ago, the company said in a filing on Friday (May 27). The results translate to loss per share of 0.49 Singapore cent, against earnings per share of 0.99 Singapore cent.
Debt-laden No Signboard Holdings said the Singapore High Court has granted it and 2 of its subsidiaries a moratorium lasting till Oct 29. On Apr 29, the embattled restaurant operator and wholly owned NSB Hotpot and NSB Restaurants applied for moratorium relief spanning 6 months, under Section 64 of the Insolvency, Restructuring and Dissolution Act. They sought court orders that no resolution shall be passed to wind up the companies and that no legal process shall be commenced or continued against any property of the applicants, among other things. The grant of the moratorium on Thursday (May 26) is subject to disclosure requirements. No Signboard has to file an affidavit by Jun 20, and every calendar month thereafter, that discloses its consolidated monthly management accounts.
Property development and investment group Bukit Sembawang Estates on Friday (May 27) posted a 75 per cent fall in net profit to S$29.6 million for the second half ended March 31, 2022. Revenue decreased 75 per cent to S$89.4 million. Gross profit was lower by 79 per cent to S$30 million mainly due to lower profit recognised on development projects. In H2, profits were recognised for 8 St Thomas, Luxus Hills (Signature Collection), The Atelier and Fraser Residence Orchard, Singapore. The group’s results translated to earnings per share of 11.42 cents, compared with 44.72 cents a year ago. For the full year, net profit fell 56 per cent to S$82.9 million while revenue was down 50 per cent to S$288.2 million.
US
Bitcoin led a decline in digital assets across the whole crypto spectrum, with the world’s largest token set for an eighth straight weekly loss in its longest such slump since August 2011. Bitcoin fell 2.4 per cent on Friday (May 27) to about US$28,700 as at 5 pm in New York, buffeted by both the macro headwinds of Federal Reserve monetary tightening and the crypto-specific fallout from this month’s implosion of the TerraUSD algorithmic stablecoin, which continues to weigh on digital assets – particularly those related to decentralised finance. Altogether, the crypto market has lost some US$500 billion in market value so far in May, a 29 per cent plunge. For a second day, cryptocurrencies declined even as risks assets such as stocks rose, marking a break from their recent lockstep relationship – and a sign of shaky conviction that could portend a worrisome trend.
The dollar edged lower on Friday (May 27) on its way to a second-straight weekly decline as traders pared expectations for US Federal Reserve interest rate hikes and as improving inflation and consumer spending data eased recession fears. The dollar index, which measures the safe-haven currency against a basket of 6 other major currencies, fell as low as 101.43, its weakest since Apr 25. On a weekly basis, it was down 1.24 per cent, following a 1.45 per cent decline the previous week. At 3.10 pm Eastern time (1910 GMT), the dollar was down 0.059 per cent at 101.66.
The US Federal Reserve is carrying US$330 billion in unrealised losses on its holdings of US Treasury and mortgage-backed securities as of the end of March, according to newly released financial statements showing the impact of rising interest rates on the market value of the Fed’s balance sheet. The central bank’s holdings of nearly US$9 trillion in assets still allowed the Fed to remit US$32.2 billion to the US Treasury in the first quarter of 2022, according to the documents. But the losses on the Fed’s investments, an US$8.5 trillion portfolio that surged higher through asset purchases designed to keep financial markets stable through the pandemic, pose a potentially tough political problem for the central bank.
Oil prices rose on Friday (May 27), closing out the week with gains ahead of the US Memorial Day holiday weekend, the start of peak US demand season, and as European nations negotiate over whether to impose an outright ban on Russian crude oil. Brent crude rose US$2.03, or 1.7 per cent, to settle at US$119.43. US West Texas Intermediate (WTI) crude rose 98 US cents, or 0.9 per cent to settle at US$115.07 a barrel. For the week, Brent rose 6 per cent while WTI gained 1.5 per cent. Prices drew support from strong worldwide demand for fuel, with both gasoline and heating oil futures outpacing crude this year.
Source: SGX Masnet, The Business Times, Bloomberg, Channel NewsAsia, Reuters, CNBC, PSR
Singapore Telecommunications Ltd – Re-opening and restructuring upside
Recommendation: ACCUMULATE (Maintained); TP S$3.05, Last close: S$2.70; Analyst Paul Chew
– FY22 revenue met our expectations at 101% of FY22e estimates. EBITDA was 93% of estimates due to lower-than-expected NBN migration earnings.
– 2H22 EBITDA was down 5% YoY, the largest drag from NCS and widening losses in Trustwave. Underlying PAT in 2H22 was up 15% excluding exceptional items, NBN and job support scheme.
– We lower our FY23e forecast by a modest 2% to account for weaker enterprise earnings. Our SOTP TP is raised from S$2.86 to $3.05 as we roll over our EV/EBITDA into FY23e and higher associate market valuations. Earnings in FY23e are expected to recover as roaming revenue creeps up and economic conditions improve in emerging countries post lock-down. The targeted monetization of around S$3bn assets will help narrow the valuation discounts for associates, strengthen the balance sheet and improve the capacity to raise dividends. Some of the assets identified for recycling of capital include disposal of Amobee, redevelopment of Comcentre and possibly part disposal of associate stakes. We maintain our ACCUMULATE recommendation.
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Date: 23 May 2022
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