DAILY MORNING NOTE | 5 May 2023

Trade of the Day

Lion-OCBC Securities Hang Seng Tech ETF (SGX: HST)

Analyst: Zane Aw

(Current Price: S$0.635) – TECHNICAL BUY
Buy price: S$0.635 Stop loss: S$0.610
Take profit 1: S$0.670 Take profit 2: S$0.700

Singapore stocks rose 0.2 per cent on Thursday (May 4), following the US Federal Reserve’s decision to hike rates by another 25 basis points. On the local bourse, Frasers Logistics & Commercial Trust led the gainers, climbing 2.3 per cent to close at S$1.36. Meanwhile, shares of Jardine Matheson ended at the bottom of the performance table after slipping 1 per cent to US$48.64.

Wall Street stocks dropped on Thursday following another brutal sell-off in regional banking shares, in the wake of four bank failures since early March. The Dow Jones Industrial Average fell 0.9 per cent to 33,127.74. The broad-based S&P 500 shed 0.7 per cent to 4,061.22, while the tech-rich Nasdaq Composite Index lost 0.5 per cent at 11,966.40.

SG

Aztech Global reported a net profit after tax of $13.4 million in its business update for the 1QFY2023 ended March 31, 3.6% lower y-o-y. Earnings per share (EPS) for the period fell by 0.6 cents y-o-y to 1.73 cents. The lower net profit was due to the higher operating expenses from inflationary cost pressures and the impact of stronger local currencies at locations of the group’s operations, along with net negative foreign exchange impact of $3.1 million during the quarter.

ARA US Hospitality Trust reported an improvement across the board for the 1QFY2023 ended March 31 as the US lodging market continued its recovery during the quarter. For the three-month period, the REIT reported revenue of US$36.2 million ($48.1 million), up 10.2% y-o-y driven by the robust growth in occupancy rates and average daily rate (ADR). Its gross operating profit and net property income (NPI) also increased by 20.1% and 19.0% y-o-y to US$10.5 million and US$6.4 million respectively. Gross operating profit margin increased by 2.4 percentage points to 29.0% while NPI margin increased by 1.3 percentage points to 17.6%. Revenue per available room (RevPAR) rose by 24.4% y-o-y to US$80, above pre-Covid-19 levels thanks to the 10.0% y-o-y growth in the REIT’s ADR of US$130.

OUE Commercial REIT’s revenue rose by 14.9% y-o-y and net property income increased 18.0% y-o-y to $56.6 million in 1QFY2023. Much of the gain was from the hospitality segment as revenue rose 30% y-o-y to $21 million. Hospitality RevPAR doubled y-o-y to $227 on the back of higher room rates supported by the ongoing recovery in the hospitality sector. The REIT’s office portfolio’s committed occupancy rose by 1.2 percentage points q-o-q during the first quarter, to 96.7%. Positive rental reversion of 6.7% was recorded for office leases in 1Q2023 and average passing rent for the portfolio rose 1.6% q-o-q to $10.26 psf per month as of March.

LHN Limited says it expects to record a lower net profit after tax (NPAT) of “no less than approximately” $19 million for the 1HFY2023 ended March 31. This is 47.1% lower than the $35.9 million recorded in the corresponding period the year before. The lower NPAT for the 1HFY2023 is mainly due to its space optimisation business which saw a fair value loss on the group’s investment properties and investment properties from its joint ventures (JVs) compared to the fair value gain in the 1HFY2022. The decrease is expected to be partly offset by a one-off gain on the disposal of an associate.

The premium for motorcycle certificates of entitlement (COE) plunged by 58.9 per cent to S$5,002 at the latest tender on Thursday (May 4), in the wake of new measures to curb speculation. COE prices also ended mostly lower in the first tender under the new three-month quota period, which has fewer COEs available in the two car categories. The COE premium for smaller cars up to 1,600cc and 130bhp, as well as for electric vehicles (EVs) with up to 110 kilowatts of power, finished at S$101,001, down 2.6 per cent from the previous high of S$103,721 at the April 19 tender. For larger cars and more powerful EVs, the COE premium ended at S$119,399, a 1.2 per cent dip from the previous high of S$120,889 set on April 19. The price for the Open category COE ended at S$124,002, down 0.4 per cent from S$124,501.

US

Sales of Apple’s iPhone rebounded last quarter, helping the world’s most valuable company top earnings estimates and weather an industrywide downturn that has battered much of its product lineup. Overall revenue amounted to US$94.8 billion in the fiscal second quarter, according to a statement on Thursday (May 4), exceeding the US$92.6 billion analysts predicted. As expected, Apple announced plans for US$90 billion in stock repurchases – the same as last year’s plan. The company also raised its quarterly dividend 4 per cent to 24 US cents a share. Though the performance was better than expected, it marked two straight quarters of sales declines – a first for Apple since the pandemic began. Earnings, meanwhile, were unchanged from a year earlier, at US$1.52 a share. That compared with an average estimate of US$1.43 a share.

Block Inc posted a rise in first-quarter revenue on Thursday as its popular payments platform Cash App continued to drive growth, a metric investors will watch closely following U.S. short-seller Hindenburg Research’s disclosure in March of short positions in the firm. The company posted total net revenue of $4.99 billion in the quarter ended March 31, up 26% from the prior year and beating analysts’ estimate of $4.59 billion. The San Francisco-based fintech, which offers merchant payment services and an app that facilitates peer-to-peer payments and lets people trade cryptocurrency, said gross profit in the first-quarter rose 32% to $1.71 billion.

Alibaba Group Holding’s international online shopping unit is exploring a US initial public offering (IPO) as it weighs options to spur growth for the business that includes major e-commerce brands Lazada and AliExpress. The firm is in the early stages of consideration and the IPO’s size has yet to be determined, according to people familiar with the matter. The business group is in talks with banks that could potentially help prepare for the IPO next year, said one of the people, who asked not to be named as the matter is private.

Shell on Thursday (May 4) posted first-quarter net profit of US$9.65 billion, topping analysts’ forecasts, as strong earnings from fuel trading offset cooling oil and gas prices. Shell kept its dividend unchanged at US$0.2875 per share, and also kept the rate of its share repurchase programme stable at US$4 billion over the next three months. Shell reported adjusted earnings of US$9.65 billion in the first quarter, exceeding a company-provided analyst forecast of US$8 billion.

Shopify cut jobs for the second time in less than a year and agreed to sell the majority of its logistics business to Flexport as it faces a challenging climb back from last year’s slump. Revenue for the period came in at US$1.51 billion, beating the US$1.43 billion average estimate of analysts. Gross merchandise volume, the total value of merchant sales across Shopify’s platforms, was US$49.6 billion, above Wall Street projections of US$47.68 billion. The Ottawa-based company also gave an outlook for the second quarter, saying it expects revenue to grow at a similar rate to the first quarter growth rate on a year-over-year basis. It also expects to achieve free cash flow profitability for each quarter of 2023.

Microsoft on Thursday (May 4) expanded public access to its generative artificial intelligence programmes, despite fears that tech firms are rushing ahead too quickly with potentially dangerous technology. The AI-enhanced features of the company’s Bing search engine and Edge Internet browser are now open for anyone to use, Yusuf Mehdi, corporate vice president, said in a blog post.

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

RESEARCH REPORTS

DBS Group Holdings Ltd – Continued rise in NII while fee income recovers

Recommendation: Buy (Maintained), Last done: S$32.13, TP: S$41.60, Analyst: Glenn Thum

– 1Q23 earnings of S$2.57bn were above our estimates due to higher net interest income (NII) and fee income. 1Q23 PATMI is 28% of our FY23e forecast. 1Q23 DPS is raised 17% YoY to 42 cents.

– NII surged 50% YoY to S$3.27bn on NIM expansion of 66bps to 2.12% despite loan growth remaining flat YoY. Fee income decline moderated to 4% YoY and grew 29% QoQ, while other non-interest income grew 39% YoY. DBS lowered its guidance for FY23e, with NIM guidance from 2.10% to 2.05-2.10%; loan growth guidance from mid-single digit to 3-5%; and fee income guidance from double-digit to high-single digit.

– Maintain BUY with an unchanged target price of S$41.60. We maintain FY23e earnings as we lower NII estimates for FY23e due to lower loans growth and NIMs, offset by lower operating expenses and provisions estimates. We assume 1.90x FY23e P/BV and ROE estimate of 16.6% in our GGM valuation.

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