DAILY MORNING NOTE | 6 March 2023
Week 10 equity strategy: With the results season in Singapore over, apart from banks, most companies expect a slower 1H23. Banks continue to enjoy rising interest margins plus a rebound in Treasury income. With few exceptions, most electronic manufacturers expect a slower 1H23. Commodity and food companies reliant on emerging market demand are also cautious, especially in Vietnam. Almost all companies are looking for a stronger 2H23 due to a China re-opening. We are more sanguine. After three years of lockdown and economic weakness, it requires time for confidence to recover. Furthermore, unlike in the past, there is a hollowing out of foreign investments underway in China dampening recovery. We think stocks shielded from slowdown this year are domestic market-reliant companies. Property and real estate agencies should perform better. While prices are unlikely to rise like last year, new launches are expected to triple with healthy take-up rates. Other bright spots are groceries, construction, building materials and hospitality.
Singapore stocks ended slightly lower on Friday (Mar 3), as persistent inflation and rate hikes continued to weigh on investor sentiment through the week. Gainers outnumbered losers 282 to 230, after 2.6 billion securities worth S$1.2 billion changed hands
Wall Street rallied on Friday (Mar 3) to end a volatile week, as US Treasury yields eased and economic data helped investors look past the growing likelihood that the Federal Reserve will have to keep its restrictive policy in place until late in the year. All three major US stock indexes surged more than 1 per cent, with the tech-laden Nasdaq climbing close to 2 per cent with a boost from interest rate sensitive megacaps. US Treasury yields eased in the wake of comments from Fed officials that calmed fears over inflation and interest rates.
International tourist arrivals to Singapore rose in January to a new post-pandemic high, with over 930,000 visitors. The Singapore Tourism Board expects the nation to receive up to 14 million international visitors this year, more than double the 6.3 million recorded in 2022. Tourism receipts are also expected to grow from around S$14 billion in 2022 to as high as S$21 billion this year. This may bode well for domestic consumer, leisure and hospitality-related sectors such as the seven S-Reits listed in Singapore that have significant exposure to Singapore-based retail properties.
The US dollar slid from a 2½-month high versus the Japanese yen on Friday (Mar 3), on track for its largest weekly loss since mid-January against a basket of six major currencies, as traders stepped back to gauge the path for Federal Reserve policy. The dollar eased 0.4 per cent to 136.26 yen, after climbing to 137.10 on last Thursday (2 March), the highest since Dec 20. For the week, the dollar was down 0.4 per cent versus the yen, its worst weekly showing since mid-January.
Tesla’s Mexican plant will probably require US$10 billion in investments in several phases, a game changer for the Nuevo Leon state where it will be based, as global companies rush to relocate to the country’s north, Governor Samuel Garcia said. Tesla picked Nuevo Leon, Mexico’s industrial cluster hub close to the Texan border, because of its lower costs, availability of workforce and presence of key parts suppliers, beating rival offers from Germany, the Netherlands, Colombia and Indonesia, among other countries.
US chipmaker Nvidia’s plans to sell technology to China’s Huawei would be thwarted if the US government proceeds with a proposal to further restrict shipments to the blacklisted company, a draft report by a government contractor shows. The document shows the Biden administration is seeking to assess the impact on US companies of proposed Huawei policy changes before imposing new rules that could crimp projected revenue streams at a time when the tech industry is already reeling.
Airbnb laid off 30 per cent of its recruiting staff this week, even as it plans to expand overall headcount this year. The cuts affected 0.4 per cent of the San Francisco-based company’s total workforce of 6,800. Airbnb has been one of the few tech firms to avoid mass layoffs, while many peers have cut their growth expectations amid higher interest rates and a sector-wide slowdown.
Facebook parent Meta Platforms cut the price of some of its Quest virtual reality (VR) headsets, including its high-end mixed reality device, in part because demand has been weaker than anticipated. The Meta Quest Pro, the company’s headset unveiled last fall aimed at corporate users, will cost US$1,000 beginning March 5, down from US$1,500, the company said Friday (Mar 3). The price is dropping so that “more people can get into VR”, chief executive Mark Zuckerberg posted on his Instagram channel.
Source: SGX Masnet, Bloomberg, Channel NewsAsia, Reuters, CNBC, WSJ, The Business Times, PSR
Recommendation: BUY (Maintained); TP S$2.40, Last close: S$1.87; Analyst Paul Chew
– 4Q22 earnings growth of 24% YoY to S$17.8mn exceeded our expectations. FY22 revenue and PATMI were 107%/107% of our FY22e forecast. Despite lower new launches, PropNex successfully pivoted towards the resale and rental market. The higher GST may have also pulled in earlier recognition of some transactions this quarter.
– Rental was the highlight with revenue growth of 69% YoY to S$56mn. Other areas of strength were private and HDB resale. Final dividend was raised by 14% 8 cents and a 1 for 1 bonus issue was announced.
– We believe the set-up for FY23e is positive. Property prices are expected to be stable but volumes are expected to rebound strongly. New launches are expected to be almost triple last year’s 4032 units. The rental market is expected to be supported by around 17,000 private home completions, and resale could be buoyed by 4,000 EC and 16,000 HDBs (plus higher grants) reaching their minimum occupancy period. Another driver to earnings is the 8% jump in salespersons to 11,667. We raised our FY23e earnings by 8% to S$68.3mn and the target price is raised to S$2.40 (prev. S$2.00). Our BUY recommendation is maintained.
Recommendation: BUY (Maintained); TP: S$1.76
Last Done: S$1.39; Analyst: Paul Chew
– FY22 revenue was within expectation, but PATMI was a massive beat. FY22 revenue and PATMI were 102%/143% of our estimates. The jump in healthcare services earnings was higher than expected.
– The drop in COVID-19-related revenue was offset by higher margin foreign patients, more elective surgeries, increased GP clinic visitations and additional bed capacity in Changi under the Transitional Care Facilities (TCF).
– The re-opening of borders and relaxation of social restrictions triggered the return of medical tourists. There was a wave of other infections raising the volumes at GP clinics and TCFs. We expect the TCF to be operational until public hospital capacity is meaningfully increased. Our BUY recommendation is maintained. FY23e earnings forecast is increased by 50% to S$142mn and our DCF target price raised to S$1.76 (prev. $1.46) with a higher discount rate to 8.0% (prev. 7.6%) as the risk-free rate was lifted.
Recommendation: BUY (Maintained); TP S$1.98, Last close: S$1.66; Analyst Paul Chew
– 4Q22 results were within expectations. Excluding a one-off marketing rebate of S$6mn, FY22 revenue and PATMI were 101%/100% of our forecast.
– Sales was supported by the return of new stores. The number of new stores increased by three to 67 and raised retail area by 5.4% in FY22.
– We expect growth in FY23e to be driven by new stores. We model 3 to 4 new stores per year. Our expectations are GP margins will be stable, supported by house brands. With re-opening and dining out, fresh food sales mix may hit the ceiling in the near term. A future catalyst will be China. Contribution is small currently with 4 stores, but we expect a planned roll-out to 15-20 stores to achieve scale. We raised our FY23e earnings by 6% to S$135.4mn on more resilient margins and a higher store count. Our BUY recommendation is maintained. The target price is raised to S$1.98 (prev. S$1.86). Valuation is pegged to 22x PE, a 10-15% discount to the 5-year historical average of 25x PE. The re-opening will have a dampening impact on same-store sales in the near term.
Recommendation: ACCUMULATE (Maintained); TP: US$5.20, Last Close: US$4.69
Analyst: Maximilian Koeswoyo
– Revenue was in line with expectations while earnings was a miss. FY22 revenue at 99% while adj. net loss came in at 120% of our forecasts due to higher-than-expected expenses.
– Singapore/Malaysia revenue grew 15%/28% while Vietnam declined 7%. ARPA/ARPL increased by 20%/22% with ~79% renewal rate. FY22 adj. net loss improved by 48%, excluding other gains/losses and share-listing expenses.
– We maintain ACCUMULATE with a lower DCF target price of US$5.20 (prev. US$5.30), on a WACC of 10.1% and g of 3%. We expect near-term growth challenges from Vietnam’s credit restriction policy. However, we expect growth to re-accelerate in 2H23 and PGRU’s profitability improvements to continue as it increases operating leverage.
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