Daily Morning Note – 5 August 2021

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Wall Street stocks mostly fell on Thursday following lackluster hiring data that offset other strong economic reports, exacerbating worries that the US recovery from last year’s downturn is slowing. Hiring by American private firms slowed sharply in July to 330,000, with dramatically lower gains in the construction and leisure and hospitality sectors, according to payroll services firm ADP. The weak data will fuel the narrative that the US economy has reached “peak growth”, said Briefing.com analyst Patrick O’Hare. It also offset a survey from the Institute for Supply Management that showed service sector activity hitting an all-time high in July as businesses continued to fully reopen. The Dow Jones Industrial Average dropped 0.9 per cent to 34,792.67.


SG News

Defence and technology group ST Engineering has set up a joint venture (JV) with Temasek for freighter leasing. This will address the growing demand for freighter aircraft as e-commerce and air cargo volumes expand globally, ST Engineering announced on Wednesday. Temasek will have a 50 per cent stake in the JV, Juniper Aviation Investments. ST Engineering Aerospace Resources, a unit of the mainboard-listed company, will hold the other half.

Steel-solutions provider BRC Asia recorded a S$10.2 million net profit for Q3 ended June, reversing its loss of S$2.5 million a year ago, thanks to the recovery in the construction sector. BRC’s revenue for the quarter surged to S$340.2 million, up from S$36.6 million a year ago. The dramatic rise was due to the low base effect last year, when the circuit breaker to curb the spread of the coronavirus led to the suspension of construction activities. BRC’s order book was about S$1.1 billion as of end-June.

Far East Orchard‘s net loss for the half year ended June 30 widened to S$1.9 million from S$853,000 the previous year as the pandemic continues to weigh on its hospitality business amid persistent lockdowns and border closures. Revenue was 15 per cent lower to S$54.9 million from S$64.9 million the previous year while loss per share stood at 0.41 Singapore cent versus 0.19 cent the previous year.

Singapore Press Holdings (SPH) on Wednesday announced that it had appointed Evercore Asia (Singapore) as its independent financial adviser to advise the company’s independent directors on the proposed acquisition by Keppel Corporation for the purposes of making a recommendation to shareholders. A composite document containing the advice of the financial adviser and the recommendations of the independent directors will be sent to shareholders of the company in due course.

DBS‘s net profit for its second quarter rose 37 percent as it joined its peers in posting a smaller allowance from the year-ago period, it said on Thursday. It declared a quarterly dividend of S$0.33 per share, restoring dividend payout to its pre-pandemic level. This brings its first-half dividend payout to S$0.51 per share. DBS suspended its scrip dividend scheme. Net profit for the three months ended June 30, 2021, stood at S$1.70 billion, compared with S$1.25 billion from the year-ago period.

The impact of the Covid-19 pandemic on the distributable income of Frasers Logistics and Commercial Trust (FLCT) is about S$1.1 million for the nine months ended June 30, mainly due to rental waivers and allowance for doubtful receivables attributable to the Covid-19 pandemic, the manager said in a business update on Wednesday. This figure is down from the S$1.2 million projected for H1 ended March. The manager of FLCT said it is well-positioned to face the current challenging global environment thanks to its resilient portfolio, strong balance sheet and financial flexibility.

Hong Kong-based ESR Cayman will buy the entire share capital of real estate fund manager ARA Asset Management Ltd for US$5.2 billion, the companies said on Wednesday, creating Asia Pacific’s biggest real asset fund manager. Following the deal, the combined entity will have US$129 billion of assets under management, according to the companies, of which US$50 billion will focus on real estates, such as data centers.

US News

San Francisco Federal Reserve President Mary Daly on Wednesday said that mostly likely the US central bank will be in position to begin to reduce its massive asset-buying programme later this year or early next year. “I’m looking for continued progress in the labour market, continued putting Covid behind us, rising vaccination rates, the things that are so fundamental to us saying that the economy has achieved that metric of substantial further progress,” Ms Daly said in an interview on the PBS NewsHour. “Right now my modal outlook is that we will achieve that metric later this year or early next.”

The United States, which closed its borders to most foreign travellers as the coronavirus pandemic took hold, plans to allow fully vaccinated visitors to enter the country, a White House official said on Wednesday. Washington is developing “a phased approach that over time will mean, with limited exceptions, that foreign nationals traveling to the United States – from all countries – need to be fully vaccinated,” the official said, without specifying a timeframe.

General Motors on Wednesday swung to a second-quarter profit from a loss last year when the Covid-19 pandemic shut operations, and raised its full-year forecast despite an US$800 million recall bill and uncertainty over Covid and a global semiconductor shortage. Net income was US$2.8 billion, or US$1.90 a share, compared with a loss in the year-earlier quarter of US$806 million, or 56 cents a share.

The New York auto show pulled the plug on its 2021 edition on Wednesday, citing the uptick in Covid-19 cases and new government measures to limit the outbreak. The gathering, scheduled for late August, was to be one of the first major trade shows at New York’s Javits Center and now becomes among the first to fall victim to the fast-spreading Delta variant of the coronavirus. “It is with great disappointment that the upcoming 2021 New York International Automobile Show at the Jacob K. Javits Convention Centre has been cancelled due to the growing incidences of the Covid-19 Delta variant and the increased measures announced recently by State and local officials to stop its spread,” Mark Schienberg, the event’s president, said in a statement.

Uber on Wednesday reported a profit in second quarter on one-time gains and said its pandemic-stalled ride-hailing business was showing signs of recovering. The San Francisco-based company reported a profit of US$1.1 billion. Revenue rose to US$3.9 billion in the recently ended quarter, more than double what it took in during the same period last year. The net income for the quarter included gains of US$1.4 billion from the revaluation of its investment in Chinese ride-share firm Didi and another US$272 million from its stake in the autonomous technology firm Aurora, according to Uber.

The New York Times beat quarterly profit expectations on Wednesday as its advertising business showed signs of recovery, eclipsing slower growth in digital subscriptions and sending its shares 12 per cent higher. The financial fallout from the Covid-19 crisis had last year cut deeply into the publication’s advertising revenue. But with companies raising their marketing budgets after the reopening of the economy, The Times posted a 66 per cent surge in advertising sales.

Oil prices fell for a third day in a row to a two-week low on Wednesday on a surprise build in US crude stockpiles, negative US economic report and worries the spread of the coronavirus Delta variant will weigh on global energy demand. Traders noted the oil price drop came despite reports of increased Mideast geopolitical tensions. Brent futures fell US$2.03, or 2.8 per cent, to settle at US$70.38 a barrel, while US West Texas Intermediate (WTI) crude fell US$2.41, or 3.4 per cent, to settle at US$68.15.

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


Prime US REIT – Bottoming out expected at year-end

Recommendation: ACCUMULATE (Maintained), Last Done: US$0.825

Target Price: US$0.94, Analyst: Tan Jie Hui

– 1H21 NPI and distributable income met expectations, at 46% of our FY21e estimates. Despite higher rental reversions and income contributions from Park Tower, NPI declined 2.3% YoY due to lower portfolio occupancy and transient parking income.

– Two new properties were acquired in new markets with longer WALEs and higher occupancies than portfolio. We expect greater resilience and earnings visibility from an enlarged portfolio.

– Maintain ACCUMULATE and DDM target price of US$0.94 (COE 9.5%). FY21e/FY22e DPUs lowered by 10.5%/0.7% to reflect lower carpark income and softer leasing, offset by reversions and rental income from new acquisitions. Catalysts include improved leasing and a greater return to office.

UOB Group Holdings – Recovery on track

Recommendation: Accumulate (Maintain), Last Done: S$26.31

Target price: S$29.00, Analyst: Terence Chua

– 2Q21 earnings of S$1.0bn in-line, at 25.5% of our FY21e forecast. Stronger-than-expected net fee and commission income offset by lower trading and investment income. 1H21 PATMI is 51% of our FY21e forecast.

– NIMs eased 1bp QoQ to 1.56%, though NII grew 3% in the same period led by steady loan growth mainly from term and trade loans in Singapore, North Asia and Rest of World. Guidance for FY21e unchanged.

– Dividend payout returns to pre-pandemic levels. Interim DPS of 60 cents declared.

Maintain ACCUMULATE with higher GGM TP (1.17x of FY21e P/BV) of S$29.00 from S$28.70 after earnings revision. We raise FY21e earnings by 7% as we crank up fees and commissions estimates on the back of strong growth in WM and income and loan-related fees. Catalysts expected from a stabilisation of outlook and the reversal of GP.

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