DAILY MORNING NOTE | 5 June 2023

Market Trend Analysis – Topic #1 Addendum – What are the 3 & 6 months returns following May

Analyst: Zane Aw

– In the earlier report dated 10th April, we looked into the “Sell in May and Go Away” adage and the resulting conclusion was investors should remain vested through May as the predictive power of this adage is questionable and the saying has been significantly off the mark in the last decade

– The historical 3 & 6 months returns following May for the past 30 years further lends credence that investors should remain vested. In the 3 months following May, the S&P 500 has yield gains in 19 of the 30 years (63.3%) with an average return of 0.83%. For the 6 months return following May, the index has generated positive returns in 21 of the 30 years (70%) with a higher average return of 3.95%

– To sum up, investors are usually rewarded with positive average returns over the following 3 & 6 months, with higher average returns generated over a longer timeframe

Week 23 equity strategy. Market optimism is back. With better-than-expected US job gains and a technical breakout above 4200 for S&P 500, the market narrative is back to soft landing and further rate hikes.

We are less constructive with regard to the market. Firstly, we believe the recent job gains should be viewed in the context of replenishing the significant losses experienced during the pandemic, rather than indicating a robust underlying economy. The average job addition pre-pandemic was 2.28mn per year (2015-19). Since the pandemic, the average job additions per year is only 1.27mn. Secondly, the May new orders PMI in the US sits at 42.6. These are lows since the pandemic and readings only seen during recessions. Thirdly, with the Fed focused on job slack (ratio of vacancies to unemployed) and payroll gains, we anticipate a delayed reaction from the central bank in response to the weakening economy. Any monetary stimulus will be slower than in previous cycles due to stubborn inflation.

In a higher for longer interest rates and inverted yield curve scenario, a winner will be Singapore banks. Floating-rate loans become a particularly attractive asset. It can capture the rise in interest rates. And inverted yield curve means the front end of the curve is higher in interest rates, where most banks price their loans. Between 60-70% of bank loans are on a floating rate basis.

A Shanghai-listed logistics company, Milkway Chemical Supply Chain Service Co, via a local-incorporated unit, is offering 22.66 cents for LHN Logistics, valuing it at around S$38mn.
LHN Logistics was listed at 20 cents last April in an all-placement offer. LHN Group has a 84.05% stake in LHN Logistics.

Milkway’s offer price is a premium of 34.8% over the LHN Logistics’ last traded price. Milkway’s offer is final.

Comment

We view the offer as positive for LHN Group (BUY, TP S$0.47).

Firstly, the value of LHN’s stake in LHN Logistics at the offer price is S$31.9mn (or S$0.078 per LHN share). We expect LHN to dividend some of the proceeds back to shareholders.

Secondly, LHN Logistics has a net debt of S$5.8mn. Thus, helping is de-gearing the LHN’s balance sheet together with the cash proceeds.

Thirdly, valuation of the offer is around 9.5x PE FY23 (based on annualised 1H23 results). It is more than double LHN valuations of 4x PE FY23e.

On the flip side, the completion LHN Logistics new ISO depot was an added growth driver for LHN.

No change to our recommendation and target price of LHN.

Paul Chew
Head Of Research
paulchewkl@phillip.com.sg


Singapore stocks ended the shorter trading week higher on last Thursday (Jun 1), as investors seized opportunities in the local market following the US House vote to raise the debt ceiling. Advancers narrowly inched past decliners 270 to 269, after 1.4 billion securities worth S$1.3 billion changed hands.

Wall Street stocks rose sharply on Friday (Jun 2), closing out the week on a high following a bumper jobs report and a deal in Congress to avert a US debt default. The tech-rich Nasdaq Composite Index rose 1.1 per cent to finish the week on a new 13-month high of 13,240.77. The Dow Jones Industrial Average rose 2.1 per cent to 33,762.76, and the broad-based S&P 500 closed 1.5 per cent higher at 4,282.37.

Top gainers & losers

Factsheets



EVENTS THIS WEEK

Factsheets

SG

A chemical supply chain service provider in China, Milkyway Chemical, intends to make a voluntary general offer for all the issued and paid-up ordinary shares in Catalist-listed LHN Logistics at an offer price of S$0.2266 per share in cash. The offer price represented a 34.9 per cent premium over LHN Logistics’ closing price of S$0.168 per share on Jun 1, and a 44.5 per cent premium over its volume-weighted average price per share for the six months ended Jun 1, LHN Logistics said in a bourse filing on Sunday (Jun 4). LHN Logistics reported a net asset value of S$0.0783 per share as at Mar 31, 2023. It is a subsidiary of real estate company LHN Limited, which owned 84.05 per cent of LHN Logistics’ shares as at Sep 30, 2022.

Medical supplies company Pasture Holdings is offering 20 million placement shares at S$0.25 apiece as it seeks a listing on the Catalist board of the Singapore Exchange (SGX). The company will raise gross proceeds of S$5 million and net proceeds of around S$3.1 million from the placement. The 20 million placement shares represents around 15.2 per cent of the company’s share capital of 132 million shares immediately after completion of the placement. Based on the offer price of S$0.25, the company would have a market capitalisation of S$33 million.

Thanks to the recovery of traffic, Changi Airport Group has reported earnings of $33 million for the year ended March 23, a sharp swing from a net loss of $838 million suffered in the year earlier. Revenue in the same period doubled to $1.88 billion. As at March, passenger traffic has recovered to 82% of the pre-pandemic levels. For the whole of FY2023 ended March, Changi handled 42.6 million passengers, an eightfold increase, reaching 62% of pre-pandemic levels.


US

The US dollar rose on Friday (Jun 2) after May’s non-farm payrolls report showed employment numbers surged, while traders weighed the merits of the US Federal Reserve possibly skipping a rate hike in June. The dollar index, which measures the US currency against six others, was last up 0.435 per cent at 103.980, on track for its largest daily percentage gain since mid-May.

UBS Group is due to report its earnings on Jul 25, but complexities include unfinalized details of government support in its emergency takeover of Credit Suisse and different accounting systems of the two banks may delay its second-quarter results until end-August when it could also provide an update on its plans for Credit Suisse Group’s local business. UBS is gearing up for an estimated US$34.8 billion gain as a result of its rescue of Credit Suisse, while warning it also faces billions in potential legal and regulatory costs.

Walt Disney will record a US$1.5 billion expense related to programmes it is removing from the Disney+ streaming platform. The expense is part of a previously announced plan to write down some programming, the company said in a filing Friday (Jun 3), and will be recorded in the current fiscal third quarter. In May, Disney said it was weighing a write-off of up to US$1.8 billion to reflect the diminished value of movies and TV shows that were coming off the Disney+ service. In the filing Friday, Disney said it anticipates another US$400 million impairment charge related to film and TV content.

Gold slipped on Friday (Jun 2) as hotter-than-expected US jobs data lifted Treasury yields, but was on track for a weekly gain as a higher unemployment reading kept alive hopes that the Federal Reserve would pause interest rate hikes. Spot gold was down 1.4 per cent at US$1,951.13 per ounce by 6.17pm GMT, after hitting a seven-session high earlier. US gold futures settled 1.3 per cent higher at US$1,969.6. Bullion has gained 0.2 per cent so far last week, and is set to break a three-week losing streak. US nonfarm payrolls grew by 339,000 in May, beating expectations for an increase of 190,000, but the unemployment rate rose to 3.7 per cent from a 53-year low of 3.4 per cent in April.


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


RESEARCH REPORTS

SATS Ltd – Acquisition costs and cargo weakness overshadow recovery

Recommendation: NEUTRAL (Maintained); Last Done: S$2.49

Target Price: S$2.51; Analyst: Peggy Mak

• FY23 revenue grew 49.4% YoY, which included a full-year contribution from 65.4%-owned HK cargo handler AAT. However, operating loss rose 12.7% YoY, dragged down by cost escalation (+48.1% YoY), S$44mn in M&A expenses, and weak performances from AAT, Malaysia ground handling and Saudi Arabia cargo handling. Net loss would be S$77.6mn if government relief were excluded.
– Staff costs surged by 62.0% YoY, a combination of inflationary pressure and restoration to full capacity ahead of the recovery in flight volume. As at March 2023, the number of flights at Changi Airport was 25% below pre-pandemic level.

– Balance sheet has turned into net debt, with net gearing at 0.33x. Consolidation of Worldwide Flight Services (WFS) could raise FY24e net gearing to 0.84x, we estimate.

– Maintain NEUTRAL with a lower target price of $2.51 (prev. $2.92). We see multiple headwinds ahead: 1) Slowdown in air cargo volume; 2) higher interest expense from the acquisition cost and debt at WFS; 3) air travel demand might plateau from 2H24e with rising recessionary risks.

Sasseur REIT – Riding on robust consumption

Recommendation: Initiate (Buy), Last Done: S$0.75

Target price: S$0.90, Analyst: Liu Miaomiao

– 1Q23 tenant sales jumped 17.9% YoY. We expect FY23e tenant sales to rise by 25% given the re-opening in China, 18 days of closure a year ago and the shift in consumption towards bargains in outlet malls. 1Q23 DPU of 1.849 cents was highest since listing.

– Stable income base guaranteed by the sponsor with 3% annual rental escalation provides a cushion 5.4% dividend yield from this fixed component alone. Potential accretive acquisition of Xi’an asset drive DPU up by 4%.

– We initiate coverage with a BUY recommendation on Sasseur REIT and a DDM-based target price of S$0.90. Accretive inorganic growth, the better-than-expected tenant sales growth are potential re-rating catalyst and attractive yield of 8.7% paid quarterly.

Salesforce Inc – Continued margin expansion

Recommendation: ACCUMULATE (Downgraded); TP: US$226.00

Analyst: Ambrish Shah

– 1Q24 revenue/Adj. PATMI was within expectations at 24%/23% of our FY24e forecasts, excluding a restructuring charge of US$0.7bn. Revenue grew 11% YoY to US$8.2bn due to higher subscription sales. PATMI spiked 611% YoY (71% normalized) driven by higher operating leverage.

– Future contracted revenue or remaining performance obligations (RPO) grew by 11% YoY to US$46.7bn. For FY24e, Salesforce maintained its total revenue guidance of US$34.6bn (up 10% YoY), while raised its GAAP EPS outlook to US$2.68 from US$2.60 taking the midpoint. Adj. operating margin expected to be 28% up from 22.5% in FY23.

– We downgrade to ACCUMULATE from BUY recommendation after the recent jump in its stock price. We increase our DCF target price to US$226.00 (prev. US$219.00) with a WACC of 7% and terminal growth of 4%. Our FY24e revenue estimates remain unchanged, while we have increased our PATMI by 2% due to lower expenses. Salesforce enjoys longer term tailwinds from cloud-based digital transformation trends as companies look to form a more holistic views of their customers.

PSR Stocks Coverage

Factsheets


Factsheets


For more information, please visit:

https://www.stocksbnb.com/singapore-stocks-coverage/


Upcoming Webinars

Guest Presentation by Power Integrations [NEW]

Date: 14 June 2023

Time: 8.30pm – 9.30pm

Register: https://bit.ly/3IoPTkt


Guest Presentation by United Hampshire US REIT [NEW]

Date: 28 June 2023

Time: 7pm – 8pm

Register: https://bit.ly/3pIRkUl


POEMS Podcast:

Research Videos

Weekly Market Outlook: NVIDIA, DBS, LHN Ltd, Singtel, Tech Analysis, SG Weekly & More…
Date: 29 May 2023
Click here for more on Market Outlook.
Sign up for our webinars here, and be among the first to receive economy and market updates.

PHILLIP RESEARCH IN 3 MINS

Phillip Research in 3 minutes: #29 Keppel Corporation; Initiation
Click here for more on Phillip in 3 mins.

Follow our Socials

Facebook Social Icon Instagram Icon Twitter Social Icon Youtube Social Icon Linkedin Social Icon TikTok Social Icon Spotify Social Icon

Join our Singapore Equity Research Community on POEMS Mobile 3 App for the latest research reports, market updates, insights and more

Click to join!

Disclaimer

The information contained in this email and/or its attachment(s) is provided to you for information only and is not intended to or nor will it create/induce the creation of any binding legal relations. The information or opinions provided in this email do not constitute an investment advice, an offer or solicitation to subscribe for, purchase or sell the e investment product(s) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of this information. Investments are subject to investment risks including possible loss of the principal amount invested. The value of the product and the income from them may fall as well as rise. You may wish to seek advice from an independent financial adviser before making a commitment to purchase or investing in the investment product(s) mentioned herein. In the event that you choose not to do so, you should consider whether the investment product(s) mentioned herein is suitable for you. PhillipCapital and any of its members will not, in any event, be liable to you for any direct/indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials attached to this email. The information and/or materials provided 揳s is?without warranty of any kind, either express or implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials.

Confidentiality Note

This e-mail and its attachment(s) may contain privileged or confidential information, which is intended only for the use of the recipient(s) named above. If you have received this message in error, please notify the sender immediately and delete all copies of it. If you are not the intended recipient, you must not read, use, copy, store, disseminate and/or disclose to any person this email and any of its attachment(s). PhillipCapital and its members will not accept legal responsibility for the contents of this message. Thank you for your cooperation.

Contact us to Open an Account

Need Assistance? Share your Details and we’ll get back to you

IMPORTANT INFORMATION

This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

This advertisement has not been reviewed by the Monetary Authority of Singapore.  

 

Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com