DAILY MORNING NOTE | 31 August 2022

Singapore shares paid little heed to Wall Street’s overnight losses and gained ground on Tuesday (Aug 30), recouping much of the previous day’s losses sparked by rate hike jitters. The key Straits Times Index rose 17.07 points or 0.53 per cent to finish at 3,239.33 against the backdrop of a mixed showing by regional peers. Major equity gauges in Japan, Taiwan, South Korea, Australia and Malaysia advanced while China and Hong Kong retreated. Trading sentiments remain weak as the same worries persist over the health of the global economy amid soaring inflation, rising rates and slowing economic activity.

US stocks ended with losses again on Tuesday, part of a downward trend set in motion by Federal Reserve chief Jerome Powell, who last week warned there would be no respite from interest rate hikes. Those comments were echoed Tuesday by New York Fed Bank President John Williams, who said it will take “a few years” to bring soaring inflation back down to the Fed’s 2 per cent target. Powell has warned of “pain” ahead for Americans in the battle against rising prices, and doused any hopes Friday the central bank would lower interest rates anytime soon. The Dow Jones Industrial Average fell 1.0 per cent to finish the day at 31,790.87. The broad-based S&P 500 dropped 1.1 per cent to close at 3,986.16, while the tech-rich Nasdaq Composite Index slumped 1.1 per cent to 11,883.14.

Top gainers & losers



OCBC Bank will be raising interest rates on its flagship 360 savings account from Thursday (Sep 1), as it joins other local banks in account revisions amid the rising rate environment. With this change, customers can earn interest of up to 4.05 per cent a year on balances of up to S$100,000, the bank said in a statement on Tuesday (Aug 30). Prior to this, account holders could earn a maximum of 2.38 per cent a year of interest on balances of up to S$75,000. At the same time, OCBC will reinstate the bonus interest category for credit card spending. Account holders who spend at least S$500 each month on the OCBC 365 credit card can earn up to 0.35 per cent a year of bonus interest. It had halted the credit card spend bonus interest on the 360 account in July 2020 amid the weakened interest rate environment and challenging macro climate then. From Sept 1, OCBC is also including a new account balance tier, with the maximum balance on which customers can earn bonus interest rates rising from S$75,000 to S$100,000.

State investor Temasek and HSBC Holdings have officially launched their sustainable infrastructure debt financing company, Pentagreen Capital. The partnership was first announced in September 2021 and will start with US$150 million of capital jointly committed by Temasek and HSBC, with the goal of making US$1 billion of loans within the next 5 years. In a press statement on Tuesday (Aug 30), the 2 founding partners said Pentagreen aims to deploy “blended finance at scale over time” to accelerate the development of sustainable infrastructure in Asia. The company will operate independently from its founding partners, who will be represented on Pentagreen’s board of directors through HSBC’s head of global banking for South Asia and global head of real assets finance, Stuart Lea, as well as Temasek’s managing director for investment, financial services, Connie Chan. Kai Nargolwala – who is also chairman of Singapore Pools and 65 Equity Partners’ boards of directors – will be chairing Pentagreen’s new board.

Property developer GuocoLand on Tuesday (Aug 30) posted a 122 per cent rise in net profit for the six months ended Jun 30, 2022. Although revenue was down 4 per cent to S$512.8 million, the group narrowed its cost of sales to S$287.3 million, bringing its gross profit for the half-year period to S$225.5 million, which was 30 per cent higher than the year-ago period. Net profit for the half-year period stood at S$325.2 million, up from S$146.2 million recorded the year before. The results translate to earnings per share (EPS) of S$0.2845, up from S$0.1233 a year ago. The slide in revenue came as reduced revenue from the developer’s Martin Modern project offset gains from the progressive recognition of sales from certain Singapore residential projects. The corresponding period last year also recognised a one-off gain from the disposal of a land parcel located in Melaka.


HP reported quarterly sales that missed estimates and reduced its annual profit forecast on falling demand for personal computers (PCs) and printers, especially among consumers. The shares fell in extended trading. Fiscal third-quarter revenue fell 4.1 per cent to US$14.7 billion, the Palo Alto, California-based company said on Tuesday (Aug 30) in a statement. Analysts, on average, projected US$15.6 billion. Consumer sales in its computer division declined 20 per cent, led by cratering demand for notebooks. HP also reduced its annual profit forecast to US$4.02 to US$4.12 a share, excluding some items, from US$4.24 to US$4.38 a share. Analysts, on average, estimated US$4.30, according to data compiled by Bloomberg. “Like many other companies, our revenue has been impacted by worsening consumer demand that we expect is going to continue in Q4,” chief executive officer Enrique Lores said in an interview. “This situation will probably last for a couple more quarters.” Revenue generated by the Personal Systems division – including PCs – dropped 3 per cent to US$10.1 billion in the period ended Jul 31. While sales to consumers fell, commercial revenue increased 7 per cent. Total unit shipments tumbled 25 per cent, with notebooks down 32 per cent.

US regulators have selected e-commerce giant Alibaba Group Holding and other US-listed Chinese companies for audit inspections starting next month, three sources familiar with the matter said. The move follows Friday’s landmark audit deal between Beijing and Washington allowing US regulators to vet accounting firms in mainland China and Hong Kong, potentially ending a long-running dispute that threatened to boot more than 200 Chinese companies from US stock exchanges. Alibaba has been notified that it is among the first batch of Chinese companies whose audits will be inspected by the US audit watchdog – Public Company Accounting Oversight Board (PCAOB) – in Hong Kong, the sources told Reuters. PwC, the accounting firm of China’s biggest e-commerce company, has also been informed of the audit work inspection, said the sources, declining to be identified due to confidentiality constraints. Alibaba did not immediately respond to a request for comment while a PwC spokesperson said it was company policy not to comment on any client matters.

US consumer confidence rose by more than forecast in August to the highest since May, suggesting that Americans are growing more optimistic about the economy amid falling gas prices. The Conference Board’s index increased to 103.2 from a downwardly revised 95.3 reading in July, the first increase in 4 months, data on Tuesday (Aug 30) showed. The median forecast in a Bloomberg survey of economists called for a rise to 98. A measure of expectations – which reflects consumers’ 6-month outlook – advanced to 75.1 while the group’s gauge of current conditions also climbed. The share of consumers who said jobs were “plentiful” decreased slightly to 48 per cent. However, 6 months from now, more respondents expected business conditions to improve. They said they are slightly more positive about their short-term financial prospects. Consumer confidence has taken a hit this year amid the highest inflation in a generation, which has led the Federal Reserve to pursue aggressive interest-rate hikes. Higher borrowing costs may force consumers to cut back discretionary purchases and big-ticket items in particular, which would contribute to a slowdown in economic activity.

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


UG Healthcare Corporation Ltd – Downcycle extended, but valuations attractive

Recommendation: Neutral (Downgraded), Last Done: S$0.215 Target Price: S$0.20, Analyst: Paul Chew

• 4Q22 PATMI was below expectations. FY22 Revenue and PATMI were 103%/93% of our FY22e forecasts. Glove selling prices remain sluggish, still inching lower on a QoQ basis.

• The largest drag in 4Q22 was the higher operating expenses. UG is building up a new sales team in Europe to focus on reusable heavy duty gloves. We expect higher costs in the coming quarters as the company builds a new distribution and brand in the region.

• We cut our FY23e PATMI by 39%. Our expectations are that stable glove prices are unlikely. Competition from China continues to depress nitrile glove prices globally. Demand is also affected by overstocking and slower demand post-pandemic. UG’s strength is the ability to source low-priced gloves from other manufacturers for its trading business. We downgrade our recommendation from BUY to NEUTRAL and lower our target price from S$0.32 to S$0.20. The target price is pegged to a discount to the Big 4 glove makers or 5x FY22e PE. The company is still trading below book value with net cash of S$84mn.

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