DAILY MORNING NOTE | 4 December 2023
**Do note that the last day of Morning Note Issuance will be on 14 December 2023. Morning Note will resume in January 2024**
Analyst: Zane Aw
– Review of asset classes performance in November – ETFs tracking S&P 500 (VOO) and US Treasury Bonds (IEF) were up over 9% and 4% respectively with breakouts of their downtrends. ETFs tracking Gold (GLDM) and Bitcoin (BITO) extended gains, ETF tracking Oil (XOP) was down 5% and ETFs tracking Singapore Equities and Hang Seng Index were largely flat
– For their current trends, Singapore Equities and Hang Seng Index remain in a downtrend. Oil is currently consolidating in a range, while S&P 500, US Treasury Bonds, Gold and Bitcoin are in an uptrend
– As we head into December, further downside is likely for Singapore Equities and the Hang Seng Index with weak price action expected to continue. For S&P 500, US Treasury Bonds, Bitcoin and Gold, we are likely to see their respective bullish trends continue. For Oil, it is likely to see price continuation its current range consolidation
Analyst: Zane Aw
– Review of performance in November – All 3 counters extended their declines in the month, with Airports of Thailand Public Co. the biggest loser, plunging over 10%
– For their current trends, all 3 counters are in a downtrend
– As we enter December, Airports of Thailand Public Co. and PTT Exploration & Production Public Co. Ltd is likely to see further downside with their current strong bearish momentum. CP All Public Co. Ltd is expected to see some sideways consolidation following a rebound from a key support level. However, any rebound is expected to be modest
Analyst: Zane Aw
– The performance of Asia-Pacific indices have been mixed over the past decade. China, Japan, India and Taiwan have been the notable outperformers in the region. India’s NIFTY 50 benchmark was the best of the pack as it more than doubled (+122%), Taiwan’s Capitalization Weighted Stock Index (TAIEX) gained over 70%, Japan’s Nikkei 225 gained over 40% and China’s CSI 300 Index was up over 25%.
– In North Asia, Korea’s KOSPI and Hong Kong’s Hang Seng Index were losers as they fell over 11% and 26%, respectively, over the decade. Indices in Southeast Asia also performed poorly – the domestic Straits Times Index fell over 13%, while the worst performer was Malaysia’s FTSE Bursa KLCI which tumbled over 47%.
– In terms of sector performance for the Chinese indices, household and personal products, as well as distribution and retail for consumer discretionary and staples, have yielded the least returns over the past decade. In the Thai SET50 index, materials was the worst performing sector followed by the insurance sector.
Summary of Trades Initiated in Past Week
Week 49 Equity Strategy – The decline in 10 Year US treasury yield and US$ depreciation is a big reprieve for the Asean markets. This eases interest and repayment burden for US-dollar denominated debt, and downward pressure on Asean currencies that have hurt purchasing power. The weaker US$ and a possible US slowdown could slow the rise in input costs and ease margin pressure.
Singapore’s growth thus far has been led by strong domestic demand, partly driven by strong tourism and purchases ahead of the 1% pt GST increase on 1 Jan 2024, which would fade in 2024. A lower foreign worker quota and higher property tax could keep costs elevated. F&B, retail and construction sectors are most affected. REITs and tech are likely to outperform in 2024.
China companies’ 3Q earnings reports have improved in general, led by internet and auto companies. Exports recovered amidst a decline in commodity prices. EV delivery volumes are guided to remain strong in 4Q despite the intense competition. Banks’ NIM are expected to continue to decline in 1H24. Property easing measures announced in Nov are likely to stabilize sales. Yanlord reported a 31% and 26% MoM gain in contracted pre-sale value and gross floor area in Oct, respectively, the first MoM increase in 4 months.
Singapore stocks ended higher 0.6 per cent on Friday (Dec 1), amid mixed trading in the region. Venture Corp was one of the top gainers, rising 3.9 per cent or S$0.49 to S$13.02. The tech manufacturer on Thursday said it is planning to purchase up to 10 million of its ordinary shares under its share-buyback plan, which was authorised by the board on Nov 29.
The benchmark S&P 500 index closed at its highest level of the year on Friday amid growing optimism the Federal Reserve was done raising US interest rates and could begin to cut them next year as inflation cools. The index closed at 4,594.63 points, up 0.59%, topping the close on July 31 at 4,588.96, which had been the prior high of 2023. The Dow Jones Industrial Average finished up 0.82% at 36,245.51 points, while the tech-rich Nasdaq Composite Index rose 0.55% to 14,305.03.
Vertex Technology Acquisition Corp’s (VTAC) shareholders will redeem close to two-thirds of the share capital of the special-purpose acquisition company (Spac). They have approved the Spac’s business combination with e-commerce streaming company 17Live. Shareholders have exercised their redemption right for some 26 million shares as at the redemption record date, which amounts to about 62.5 per cent of the company’s issued share capital of 41.6 million shares, VTAC said in a statement on Friday (Dec 1). Excluding the holdings from two VTAC shareholders – Vertex Co-Investment Fund (Vertex SPV) and Venezio Investment – which had committed not to redeem their shares, the redemption rate would be 87.9 per cent. These entities collectively held 12 million shares. VTAC’s sponsor Vertex Venture Holdings and Venezio are Temasek-linked entities. Apart from Vertex SPV and Venezio, the other entity that had a substantial direct interest in VTAC was Income Insurance, which held 2.6 million shares.
In-flight caterer and ground handler Sats on Friday (Dec 1) reported that it, along with its units, has secured uncommitted bilateral facilities to help it deal with the cancellation of an older revolving credit facility. These facilities will also help the group streamline its treasury, banking and financial management and continue to generate cost savings, the company said in an announcement on the bourse. In Singapore dollar terms, these facilities add up to S$204.5 million, based on current exchange rates. Sats’ indirect wholly owned unit Worldwide Flight Services (WFS) Global was granted uncommitted bilateral facilities totalling 25 million euros (S$36.4 million) by ING Bank, subject to the terms and conditions of a master agreement of guarantees and letters of credit between the two parties. WFS Global has also been granted similar facilities by MUFG Bank amounting to 33 million euros, subject to the terms and conditions of a framework agreement for the issuance of guarantees entered into by the two parties, Sats said. WFS Inc, an indirect wholly owned unit of Sats, has also been granted uncommitted bilateral facilities totalling US$30 million by the Bank of America, subject to the relevant terms and conditions set out in the uncommitted line of credit letter.
The manager of CapitaLand India Trust (CLINT) has priced its issuance of JPY4 billion (S$36.1 million) notes due 2028 as part of its S$1.5 billion multicurrency debt issuance programme. The notes will bear interest at 1.45% per annum, payable semi-annually in arrears with a tenor of five years. The net proceeds arising from the notes issue will be used for the purpose of refinancing CLINT’s JPY4 billion 0.64375% notes due 2023 maturing on Dec 18. The notes are expected to be issued on Dec 6.
A consortium group led by Uni-Asia Group’s wholly-owned subsidiary Uni-Asia Capital (Japan) has won a tender to develop and operate a private finance initiative project in Japan with its bid of 13.1 billion yen (S$118 million). The public work facilities development project, called for by the government of Kuki City, Saitama Prefecture, involves building a public use facility which uses residual heat from an existing waste treatment plant in the city, the group said in a Friday (Dec 1) bourse filing. The facility will include a fitness centre, public park, pool and bathhouse. Development is expected to take place in 2027. Following its completion, the consortium will operate the facility for 20 years. The new development marks Uni-Asia Group’s second private finance initiative project. Its first, which was in Saitama Prefecture’s Wako City, was completed in December 2021.
Federal Reserve Chair Jerome Powell pushed back against Wall Street’s growing expectations of interest-rate cuts in the first half of 2024, saying the committee will move cautiously with borrowing costs at a 22-year high but retain the option to hike further. “It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” Powell said Friday at an event in Atlanta. “We are prepared to tighten policy further if it becomes appropriate to do so.” Powell signalled that Fed officials expect to leave interest rates steady when they meet Dec 12-13, giving themselves more time to evaluate the economy after raising rates aggressively from near zero in March 2022 to above 5% in July. “Having come so far so quickly, the FOMC is moving forward carefully, as the risks of under- and over-tightening are becoming more balanced,” Powell said.
The Biden administration on Friday issued long-awaited guidance that will limit Chinese content in batteries eligible for electric vehicle tax credits starting next year. In a win for automakers, the US Treasury will temporarily exempt some trace critical minerals from new strict rules barring materials from China and other countries deemed a “Foreign Entity of Concern.” The FEOC rules come into effect in 2024 for completed batteries and 2025 for critical minerals used to produce them. The Energy Department said a company would be deemed a FEOC if owned or controlled by a named foreign government. Companies will also be ineligible if an entity of concern holds 25% of that entity’s board seats, voting rights, or equity. Those countries include North Korea, China, Russia and Iran.
Amazon bought three rocket launches from SpaceX for its Project Kuiper internet satellites, the tech giant announced on Friday. The move is a surprise from Amazon, given the company’s Kuiper system aims to compete with Elon Musk’s Starlink in the satellite broadband market. Amazon previously made a blockbuster order for launches from three of SpaceX’s top rocket rivals, including Jeff Bezos’ Blue Origin. SpaceX, the most active rocket operator in the world, has been adamant that it will continue launching Starlink competitors on its rockets. The company previously launched a number of other companies’ broadband satellites to orbit and signed deals for future launches as well. In Friday’s announcement, Amazon said it signed with SpaceX for three Falcon 9 launches in mid-2025. Financial terms of the agreement were not disclosed.
Google has called on Britain’s antitrust regulator to take action against Microsoft, claiming its business practices had left rivals at a significant disadvantage, according to a letter seen by Reuters. Microsoft and Amazon have faced mounting scrutiny around the world over their dominance of the cloud computing industry, with regulators in Britain, the European Union, and the US probing their market power. The CMA (Competition and Markets Authority) launched an investigation into Britain’s cloud computing industry in October, following a referral from media regulator Ofcom which highlighted Amazon and Microsoft’s dominance of the market. In 2022, Amazon Web Services (AWS) and Microsoft’s Azure had a combined 70-80 per cent share of Britain’s public cloud infrastructure services market, Ofcom said. Google’s cloud division was their closest competitor, at around 5-10 per cent. In a letter submitted to the CMA, Google said Microsoft’s licensing practices unfairly discouraged customers from using competitor services, even as a secondary provider alongside Azure.
Source: SGX Masnet, Bloomberg, Channel NewsAsia, Reuters, CNBC, WSJ, The Business Times, PSR
Recommendation: ACCUMULATE (Maintained); TP: US$270.00
Analyst: Ambrish Shah
– 9M24 revenue was within expectations but earnings were ahead. 9M24 revenue/PATMI were 74%/78% of our FY24e forecasts. 3Q24 PATMI spiked 483% YoY to US$1.2bn driven by higher operating leverage.
– For 4Q24e, Salesforce expects total revenue to grow 10% YoY to US$9.2bn driven by resilient demand for its Sales Cloud, Service Cloud, and MuleSoft offerings. GAAP EPS to be about US$1.27 vs -US$0.10 in 4Q23 led by cost-containment efforts.
– We maintain ACCUMULATE with a raised DCF target price of US$270.00 (prev. US$242.00), with a WACC of 7% and terminal growth of 4%. Our FY24e/FY25e revenue estimates remain unchanged; while we have increased PATMI estimates by 14%/13% to account for lower expenses. We believe Salesforce is well-positioned to benefit from cloud-based digital transformation trends as companies look to form a more holistic view of their customer data to provide better customer experiences.
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