DAILY MORNING NOTE | 4 November 2022

Singapore shares tumbled on Thursday (Nov 3) alongside a sea of red across the regional markets, following overnight losses in Wall Street amid some confusion – and disappointment – over the messaging from the US Federal Reserve on the speed and extent of the monetary tightening path. The key Straits Times Index fell 1.2 per cent or 38.62 points to close at 3,102.51 points. Key gauges across the region posted losses with the sharpest falls in Hong Kong, Malaysia and Australia. Japan was closed on Thursday for a holiday. As widely expected, the Federal Reserve raised the Fed Funds target rate by 75 basis points to 3.75 to 4 per cent at its monetary policy meeting. This marks the Fed’s fourth successive supersized hike. On the local bourse, some 1.3 billion securities worth S$1.02 billion were traded. Losers outpaced gainers, with 313 counters down and 190 up. The losses were led by the trio of local lenders, with DBS, UOB and OCBC finishing 1.6 per cent, 0.2 per cent and 0.9 per cent lower, respectively. Singapore Post reported a record half-year revenue of S$958.9 million, but incurred a net loss of S$9.9 million for the six months ended September, owing to higher operating expenses and a higher put option redemption liability on its Australian subsidiary. Shares of SingPost finished 1.8 per cent or S$0.01 lower at S$0.54 on Thursday. SIA Engineering recently reported a group net profit of nearly S$20 million for its second quarter ended September – up 88 per cent – on the back of a 38 per cent jump in revenue to S$191 million from a year ago.

Wall Street stocks retreated on Thursday as markets awaited key US jobs data, while taking in hawkish moves by major central banks. The latest decline came a day after the US Federal Reserve announced another sharp interest rate increase and said it was premature to think about pausing, which was followed shortly by a similar big move by Bank of England as part of the fight against inflation. The Dow Jones Industrial Average lost 0.5 per cent to close at 32,001.25. The broad-based S&P 500 dropped 1.1 per cent to 3,719.89, while the tech-rich Nasdaq Composite Index fell 1.7 per cent to 10,342.94. Among individual companies, chipmaker Qualcomm plunged 7.7 per cent as it lowered its forecast for smartphone sales. The outlook weighed on smartphone giant Apple, which fell 4.2 per cent. Among other companies reporting results, eBay rose 2.0 per cent while Marriott International dropped 4.3 per cent.

Top gainers & losers



OCBC’s 3Q2022 results beat expectations with net profit of S$1.61bn vs consensus estimate of S$1.48bn. Bulk of the beat was from stronger than expected net interest income of S$2.10bn (+44% YoY) and net interest margin growth to 2.06% (+54bps YoY). More details to follow after 10.30am analyst call.

With business momentum strong in the third quarter of 2022, DBS will likely remain resilient and post a “solid year” in 2023, said DBS chief executive Piyush Gupta. Gupta noted, however, that the tail-risk scenario of high rates and high inflation will likely play out next year, with inflation remaining sticky and the US Federal Reserve continuing its rate hikes. DBS reported a 32 per cent year-on-year rise in net profit for the third quarter ended September, buoyed by higher net interest margins, healthy loan momentum and a stable fee income. The record figure of S$2.24 billion had beat a S$1.87 billion consensus forecast. Total income for the quarter also came in at a record S$4.54 billion, 28 per cent higher than the previous year. The results translate to an earnings per share of S$3.41, compared with S$2.58 in the year-ago period. The lender declared a dividend of S$0.36 per share for the period, up from S$0.33 in the year-ago period, which brings the dividend for the nine months ended Sep 30 to S$1.08 a share. Net interest income was up 44 per cent to S$3.02 billion, as the bank’s net interest margin (NIM) rose to 1.9 per cent from further increases in interest rates. Other non-interest income climbed 32 per cent to S$753 million, while net fee and commission income was 13 per cent lower at S$771 million. For the quarter, loan momentum was healthy as non-trade corporate and housing loans grew faster than in the first two quarters of 2022, Gupta said. But he added that it “has been hard to hold the credit spread in the trade book, and the low margin trade book doesn’t make sense to us” with rates on the rise. Gupta also noted that liquidity in the region was at comfortable levels. While there is more conversion from current accounts savings accounts (Casa) to fixed deposits in the US dollar book, the bank’s Casa ratio for its Singapore dollar book still remains high at 93 per cent. For wealth management, Gupta said it was stabilising despite no improvement in the market conditions. While capital markets are still challenging, the bank has continued to benefit from a lot of inflows into the region in the first nine months of the year. As for asset quality, Gupta noted that asset quality has “been really pristine”. DBS’ non-performing loan ratio improved to 1.2 per cent, as higher upgrades and repayments had more than offset new non-performing asset formation. Meanwhile, allowances for credit and other losses stood at S$178 million, with S$153 million in general allowances and S$25 million in specific allowances taken. Gupta noted that this was due to the uncertainty around next year’s outlook. Looking ahead to 2023, Gupta expects the loan pipeline will remain healthy, and reach a mid-single-digit growth in 2023. He, however, warned that the bank may have to reconsider its pipeline if there is a sharp slowdown in Asia in the early part of next year. Momentum in the fourth quarter may also moderate amid lower onshore borrowing costs in China. Gupta expects the US will see a recession if the Fed funds rates end up at 5 per cent, resulting in a sharper slowdown in Asia. Meanwhile, he expects DBS can post double-digit fee income growth in 2023, led by wealth management and a growth in card fees. He also expects NIM will reach around 2.25 per cent by mid-2023 if the Fed funds rate peaks at 4.75 per cent, comprising a much stronger growth in the commercial book but some drag on the treasury book. As for the cost-to-income ratio, Gupta expects it will be below 40 per cent, helped by a growth in income. On the impact of China, he expects it would take two or three more quarters before its economy starts opening up, although that should provide some upside to the bank’s current outlook. Additionally, Gupta said the bank is on track for its acquisition of Citi’s business in Taiwan. While he noted geopolitical concerns in the North Asia region, he highlighted the bank’s strategy includes having a healthy view on North Asia.

Singapore Post (SingPost) sank into the red in its latest half-year results reported on Thursday (Nov 3), after taking into account an exceptional item related to the acquisition of an Australian unit. The charge might arise in future depending on whether SingPost’s stake rises, and the value of that unit. SingPost’s profitability took a turn for the worse in the half year to September as it posted a net loss of S$9.9 million, compared to a net profit of S$35 million for the corresponding period a year ago. The loss was a result of a fair value charge of S$21 million arising from the higher put option redemption liability on Freight Management Holdings (FMH). Stripping it out, SingPost has an underlying earnings of S$13.2 million. FMH is a 51 per cent owned subsidiary of SingPost, operating a fourth-party logistics service business that provides integrated supply chain and distribution solutions in Australia. SingPost’s chief financial officer (CFO) Vincent Yik said in an earnings call on Thursday that the size of any such charge in future depends on whether the vendor who sold its stake in FMH to SingPost will exercise the put option to sell further stake to the Singapore firm. Yik stated that the other factor that will affect the size of the charge is the value of FMH, which will appreciate if it performs well. Hence, it will be a smaller charge for SingPost if it raises its stake in FMH, making the stake it does not already own smaller, thus reducing the impact of any revaluation. However, it will be a higher figure if the value of FMH appreciates, and Yik noted that higher earnings from FMH in that scenario would bolster SingPost’s profit. Group chief executive Vincent Phang added that the exceptional item should not be seen in the light of an impairment of an asset as FMH is doing “far better than it was originally contemplated”. However, there was a charge due to the obligation that it would compensate the vendor for diluting the latter’s stake when FMH performs better. Phang noted that SingPost’s investments in logistics and in Australia are starting to bear fruits, with contributions from Down Under having ballooned to 56 per cent and 42 per cent in terms of operating profit and revenue respectively for H1 FY2023 from 4 per cent and 17 per cent for the year-ago period. SingPost’s revenue was its highest ever for a half-year, at S$958.9 million, driven mainly by higher contributions from the logistics business, which drew in S$680.8 million, up 79.4 per cent from S$379.5 million a year ago. This was credited to the consolidation of FMH and international freight forwarding volume growth. The group however noted continued weakness in its post and parcel business, which posted a 19.6 per cent year-on-year drop in revenue to S$261.7 million. On the international front, elevated air conveyance rates and lockdowns in China were cited as key factors in the decline. Domestically, the group pointed to a dip in the volume of domestic letters and parcels, as well as a major customer who had insourced their logistics. Earnings per share declined to -S$0.0068 from S$0.0123 a year ago. The board has declared an interim dividend of S$0.0018 per share for the half year, which will be paid to shareholders on Nov 30. For the same period last year, the group had declared a higher interim dividend of S$0.005 per share. Operating expenses for H1 FY2023 increased by 34.9 per cent to S$920.8 million, from S$682.6 million for the same period a year ago. This more than offset the group’s 31.1 per cent increase in revenue, leading to a decline of 19.1 per cent in operating profit to S$41.3 million, down from S$51.1 million previously. Yik stated that a strengthened Singapore dollar against an Australian currency would have an impact of less than a million dollars on its bottom line, as he noted that the Australian dollar has depreciated 6 per cent against Sing dollar year to date. SingPost is not expecting any impact from rising interest rates because all its existing borrowings are on fixed rates. Commenting on its future outlook, SingPost remained optimistic, highlighting that its revenue and earnings profile will continue to shift towards logistics and overseas markets as it executes new growth initiatives. It also expressed hope for its property business, citing “healthy interest and demand seen in the Paya Lebar Central area”. The counter was trading at S$0.54, 1.8 per cent lower when market closed on Thursday, after the financial results were published.

The manager of OUE Commercial Real Estate Investment Trust (OUE C-Reit) on Thursday (Nov 3) reported a 4.4 per cent year-on-year rise in net property income in the third quarter ended Sep 30, although its amount available for distribution continued to shrink. Net property income in Q3 rose to S$48.3 million, due mainly to lower property expenses, the manager said in an exchange filing. The Reit’s revenue increased 1.7 per cent to S$59.5 million in the quarter, compared with the same period last year. But lower income support for OUE Downtown Office and the higher interest expense in the same quarter led to a drop in the amount available for distribution, which was 13.3 per cent lower year on year at S$26.2 million. The Reit’s commercial segment in Q3 reported 2.4 per cent year-on-year growth in revenue to S$42.6 million, as well as a 5.3 per cent year-on-year increase in net property income to S$32.7 million. As at Sep 30, the committed occupancy of OUE C-Reit’s Singapore office properties increased 2.5 percentage points on a quarterly basis to 95.4 per cent, the manager noted. Leasing demand was however tepid in Shanghai, owing to ongoing business uncertainty and as occupiers focused on space and cost efficiencies, it said. Q3 revenue for the hospitality segment remained at the minimum rent of S$16.9 million under the master lease arrangements of OUE C-Reit’s hotel properties due to the reduced inventory, said the manager. Net property income rose 2.7 per cent year on year in the same quarter to S$15.6 million. Han Khim Siew, chief executive of the manager, said it has taken a “proactive capital management approach” to stay resilient against inflation, rising interest rates and other headwinds like heightened geopolitical tensions. “We have mitigated refinancing risk by successfully completing the early refinancing of close to S$1 billion of secured debt in August with an unsecured S$978 million sustainability-linked loan,” said Han. This means only 12 per cent of total debt is due for refinancing in 2023 and none in 2024. He added that the manager further diversified funding sources in May and increased financial flexibility with the issuance of S$150 million five-year 4.2 per cent fixed-rate notes. As at end-September, the Reit’s aggregate leverage was 40.3 per cent with the weighted average cost of debt remaining stable at 3.2 per cent per annum, said the manager. It added that about 70 per cent of total debt is hedged into fixed interest rates to mitigate the impact of rising rates. On the whole, demand for office space was largely driven by technology firms, flexible workspace operators and non-banking financial companies, said the manager. Grade A occupancy in the central business district (CBD) grew 1.3 percentage points sequentially to 96.9 per cent, while office rents rose 2.7 per cent quarter on quarter to S$11.60 per square foot per month. “While global macroeconomic headwinds and consolidation in the technology sector could weigh on demand and rents in 2023, core CBD Grade A office rental growth is expected to remain positive for the rest of 2022 and 2023 due to the limited supply pipeline, barring a sustained recession,” said the manager. As for the hospitality sector, the manager said the further easing of pandemic measures, pick-up in MICE events and continued recovery of the travel-related sectors are expected to sustain hotel demand despite inflationary pressures and the uncertain economic outlook.


U.S. stock futures fell slightly Thursday night after the major averages dropped for a fourth day, and investors looked ahead to the October jobs report for clues into the pace of future rate hikes from the Federal Reserve. Dow Jones Industrial Average futures fell by 44 points, or 0.14%. S&P 500 and Nasdaq 100 futures dipped 0.15% and 0.12%, respectively. During the regular session Thursday, the Dow Jones Industrial Average slid 146.51 points, or about 0.5%. The S&P 500 lost nearly 1.1%, while the Nasdaq Composite shed 1.7%. Investors weighed the latest 0.75 percentage point rate hike from the Fed, as well as commentary from chair Jerome Powell that suggested a pivot could be further away than traders anticipated. The October nonfarm payrolls report on Friday will give investors further clues into where the economy stands, and how much work the central bank has ahead of it to bring down inflation. Economists polled by Dow Jones expect 205,000 jobs were added last month and predict that the unemployment rate held steady at 3.5%. All the major averages are on track to close out the week with losses. Through Thursday, the Dow is down 2.62%, and set to end four weeks of gains. The S&P and Nasdaq are down 4.64% and 6.84%, respectively, on pace to break two-week winning streaks. The tech-heavy Nasdaq is on pace for its worst weekly performance since January 2022.

Coinbase Global posted a loss of $2.43 per diluted share in the third quarter, compared with earnings of $1.62 a share a year ago, as its main revenue driver—crypto trading—continues to remain depressed in the wake of the market’s crash. The largest U.S. crypto exchange lost $545 million on total sales of $590 million in the quarter, down from a profit of $406 million on $1.3 billion of total sales the same quarter last year. The numbers were slightly worse than expected. Analyst consensus was for a loss of $2.38 a share on sales of $641 million. A key measure of customer engagement, monthly transacting users, or MTU, rose to 8.5 million in the third quarter from 7.3 million a year ago, but fell from 9 million in the second quarter. Shares were up about 5% in late trading.

PayPal shares fell more than 5% in after-hours trading, despite beating earnings and revenue expectations for the third quarter, as the company’s Q4 revenue estimate came in behind analysts’ expectations – EPS of $1.08 per share, ex-items, vs. 96 cents expected, while revenue came in at $6.85 billion, vs. $6.82 billion expected. The company estimated Q4 revenues to come in at $7.38 billion, which is less than the $7.74 billion consensus expectations, according to analysts. PayPal raised EPS guidance for the full fiscal year, saying it’s benefited from “ongoing productivity initiatives.” It expects to add 8 to 10 million net new active users in the fiscal year. The company said it’s working with Apple to enhance its offerings for PayPal and Venmo, including by letting U.S. merchant customers accept contactless payments through their mobile wallets and adding PayPal and Venmo network-branded credit and debit cards to the Apple Wallet.

Starbucks on Thursday reported quarterly earnings and revenue that topped analysts’ estimates, fueled by U.S. customers spending more on iced coffee drinks and Pumpkin Spice Lattes. The Seattle-based coffee company also said U.S. traffic improved in the quarter, and has nearly bounced back to 2019 levels. “Despite elevated pricing actions taken throughout the year, daily store traffic in the U.S. reached approximately 95% pre-pandemic levels in September fueled by the wildly successful fall promotion,” Chief Financial Officer Rachel Ruggeri said on the company’s quarterly conference call. Shares rose 2.7% in after-hours trading. The company reported EPS of 81 cents adjusted vs. 72 cents expected and revenue of $8.41 billion vs. $8.31 billion expected. Net sales for the period rose 3.3% to $8.41 billion. Global same-store sales increased 7%, fueled by increased spending in its home market. In the United States, Starbucks reported same-store sales growth of 11%, which was the result of people spending more on average and a slight uptick in traffic. Prices were also up 6% from a year ago, but executives said they don’t plan to raise prices anymore for the time being. Cold beverages accounted for more than three-quarters of beverage sales at U.S. company-owned cafes. Starbucks said customers are more likely to add pricy syrups, cold foam and dairy substitutes to cold drinks, driving up their price. The company’s loyalty program saw its active membership climb 16% to 28.7 million people in the quarter. Outside the U.S., Covid-19 restrictions in China continued to weigh on Starbucks’ international performance. The company’s international same-store sales fell 5%, which wasn’t as steep as the 7.1% expected decline. Same-store sales in China, Starbucks’ second-largest market, fell 16% in the quarter. For fiscal 2023, Starbucks is projecting revenue growth of 10% to 12%, despite a 3% hit from foreign currency translation. The company also expects its global same-store sales growth on the high end of its prior range of 7% to 9%. However, the fiscal first quarter will likely be on the low end of that range due to lockdowns in China. Starbucks also said that its adjusted earnings per share growth in fiscal 2023 will be on the low end of its prior range of 15% to 20%, citing the costs of its reinvention plan. Ruggeri also said that the company is predicting that commodity headwinds will continue into fiscal 2023, although at a lower level than in fiscal 2022. For its fourth-quarter net income attributable to Starbucks of $878.3 million, or 76 cents per share, down from $1.76 billion, or $1.49 per share, a year earlier. Excluding restructuring and impairment costs, the sale of its Russian joint venture and other items, Starbucks earned 81 cents per share.

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


DBS Group Holdings Ltd – Higher net interest margin lift profits

Recommendation: Buy (Maintained), Last done: S$34.20

TP: S$41.60, Analyst: Glenn Thum

– 3Q22 earnings of S$2.24bn in line with our estimates due to higher net interest income (NII) and net interest margins (NIM) slightly offset by lower fee income and higher allowances. 9M22 PATMI is 77% of our FY22e forecast. 3Q22 DPS up 9% YoY at 36 cents.

– NII surged 44% YoY to S$3bn on NIM expansion of 47bps to 1.90% and loan growth of 6% YoY. Fee income fell 13% YoY due to weaker market sentiment while other non-interest income increased 32% YoY. 3Q22 ROE increased 4.2% points YoY to 16.3%.

– Maintain BUY with an unchanged target price of S$41.60. We raise FY22e earnings by 3% as we increase NII estimates for FY22e. We assume 1.77x FY22e P/BV and ROE estimate of 13.6% in our GGM valuation. We raised FY23e earnings by 6% as we increase NII estimates for FY23e. Our ROE estimate for FY23e is raised from 14.7% to 14.9%. A 50bps move in interest can raise earnings by 13%.

Apple Inc. – Proving its resilience

Recommendation: BUY (Maintained); TP: US$190.00, Last Close: US$138.88

Analyst: Maximilian Koeswoyo

– Revenue and PATMI in line at 100% of our FY22 forecasts. Resilient hardware revenue with 9% YoY growth in 4Q22 amid negative industry sentiment.

– Revenue growth deceleration and increasing FX headwinds guidance for 1Q23.

– Maintain BUY with a lowered target price of US$190.00 (prev. US$198.00). Valuations based on DCF with a WACC of 6.5% and terminal growth rate of 3%. We believe Apple will benefit from the increased average selling price (ASP) of its iPhone while volume growth is expected to face headwinds from both the lower demand compared to FY22 and potential supply constraints from the continued lockdowns in China.

Airbnb Inc – Record earnings as travel demand persists

Recommendation: BUY (Upgrade); TP: US$128.00

Analyst: Ambrish Shah

– 3Q22 results beat expectations. 9M22 Revenue/PATMI was at 79/115% of our FY22e forecasts. In 3Q22, revenue grew by 29% YoY despite FX headwinds. PATMI jumped 46% YoY driven by continued strong travel demand and higher operating leverage.

– Gross bookings value (GBV) grew 31% YoY to US$15.6bn supported by higher average daily rates (ADRs). Revenue guidance for 4Q22 is a growth of 17-23%.

– We upgrade to BUY from NEUTRAL after the recent fall in its stock price. We also increased our DCF target price to US$128.00 (prev. US$119.00) with a WACC of 7% and terminal growth of 4%. We increased our FY22e Revenue/PATMI by 1%/26% due to a slightly higher revenue take rate and lower expenses. While inflation and rising interest rates could weigh on discretionary demand for travel in the near term, we believe Airbnb is well-positioned as the platform offers better non-urban location listings versus hotels, benefits from travelers looking for long-term stays, and is more family and group travel-friendly.

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