DAILY MORNING NOTE | 6 November 2023
Trade of the Day
Analyst: Zane Aw
(Current Price: US$245.90) – TECHNICAL SELL
Sell stop: US$227.30 Stop loss: US$254.00 (-11.75%)
Take profit 1: US$193.00 (+15.09%) Take profit 2: US$168.00 (+26.09%)
Analyst: Zane Aw
– Review of asset classes performance in October – Most ETFs were down about 2-4%, gainers were ETFs tracking Gold (GLDM) and Bitcoin (BITO) which gained >7% and surged close to 30% respectively with breakouts of their respective downtrend resistances accompanied with strong momentum
– For their current trends, S&P 500, US Treasury Bonds, Singapore Equities and Hang Seng Index remain in a downtrend. Oil is currently consolidating in a range, while Gold and Bitcoin have begun an uptrend
– As we head into November, further downside is likely for Oil, Singapore Equities and Hang Seng Index with weak price action expected to continue. For Gold and Bitcoin, their respective bullish outlook remain intact with some possible consolidation ahead. For S&P 500 and US Treasury Bonds, some recovery in price is expected from near-term supports.
Week 45 strategy: Fed chairman Jerome Powell did not hint at any rate hikes in December, US jobs data is weaker than expected, and bond markets are pricing in a permanent pause by the Fed. The 10-year Treasuries, which peaked at 4.93% mid-week, experienced a significant drop of 40 basis points to 4.52%. But we think any further rally in bonds in the near term could be limited. The financing needs (or supply of bonds) of the US government remains elevated. An expected issuance of U$776bn is planned in 4Q23, double from a year ago. But it will be lower than the $1tr in the prior quarter. Long-term is bleak as post-pandemic, Treasury financing needs have more than doubled from US$1.3tr to US$3.2tr p.a.
The October jobs data was disappointing. Not only were the 150k net additions below the expected 182k, 85% of the new jobs were from non-economic sensitive government, healthcare and social assistance. Manufacturing PMI also fell back to five-month lows.
In Singapore, we would like to share some key takeaways from recent analyst briefings; 1) Wilmar: the worst is over in China but do not expect any sharp recovery. The threat of a severe El Nino has diminished as rain has returned. The strong US dollar is dampening demand for soft commodities in emerging countries; 2) SingPost: Continuing to build up its 4PL logistics in Australia with a S$183mn acquisition. The review of the postal business is still progressing and there are opportunities for non-core asset sales. We think earnings should recover in the coming quarters with the recent postal rate hike and recovery in the international parcels business. 3) Manulife US REIT: Likely to complete its debt negotiations with the banks by year-end. For the banks to extend existing loan facilities, we expect a combination of sponsor asset purchase, part repayment of loans (US$133mn cash on hand) and equity fundraising with a sponsor loan backstop. 4) Venture Corp: Results were below expectations and the outlook is still unclear.
Head Of Research
Singapore shares rose 2 per cent or 61.17 points for the day to 3,143.66 points, and wrapped up the five-session trading week 2.7 per cent higher than the week before. The Federal Reserve’s move to hold the interest rates steady on Thursday (Singapore time) buoyed real estate investment trusts (Reits), which have borne the brunt of rising finance costs since the central bank started hiking rates last March to tame inflation. Across the broader market in Singapore, gainers trumped decliners 438 to 216, with a turnover of some 1.5 billion securities worth S$1.1 billion.
US stocks rose on Friday (Nov 3) after data showed US job growth cooled in October, easing concerns about further interest rate hikes. Wall Street’s three main indices moved higher, with the Dow and S&P 500 ending 0.7% and 0.94% up respectively.
DBS’ 3Q2023 results beat expectations with adjusted net profit of S$2.63bn vs consensus estimate of S$2.50bn. Bulk of the beat was from stronger-than-expected net interest income of S$3.50bn (+16% YoY) and net interest margin growth of 2.19% (+29bps YoY). Fee income surged by 14% YoY and grew 5% QoQ from growth in wealth management, loan-related and credit card fees. Credit costs rose by 12bps YoY to 18bps as allowances were up 21% YoY to S$215mn mainly due to a rise in SPs to S$197mn (3Q23: S$25mn). 3Q23 dividend was up 33% to 48 cents, bringing 9M23 dividend to 138 cents. More details to follow after 11.30am analyst call.
Senior Research Analyst
Singapore’s retail sales inched up 0.6 per cent year on year in September, significantly less than the revised 4.2 per cent growth recorded in August, data from the Department of Statistics (SingStat) showed on Friday (Nov 3). The reading was a disappointment when compared with Bloomberg’s consensus forecast of 1.6 per cent expansion. On a month-on-month, seasonally adjusted basis, retail sales fell 1.6 per cent, reversing from the revised 1.9 per cent expansion in August. September’s estimated total retail sales value was S$3.9 billion, with online sales accounting for 13.5 per cent of that amount. Excluding motor vehicles, retail sales ticked up 0.5 per cent from the year-ago period, but shrank sequentially – down 0.8 per cent on a seasonally adjusted basis.
Daiwa House Logistics Trust has posted a distributable income of S$27 million for the nine months ended Sep 30; this is up 2.2 per cent from S$26.4 million for the same period last year. The income growth was supported by contributions from properties acquired in December 2022, and realised foreign exchange gains related to hedges put in place, the manager of the real estate investment trust (Reit) said on Friday (Nov 3). This came as gross rental income and net property income (NPI) rose on a yen basis, although NPI in Singapore dollar terms fell by 6.4 per cent due to a weaker yen against the Singapore dollar. Gross rental income rose 4.9 per cent on a yen basis to 4.1 billion yen (S$37.2 million) from 3.9 billion yen in the same period last year. Meanwhile, NPI was up 3.9 per cent on the year to 3.5 billion yen from 3.4 billion yen.
Singapore-based carbon project developer CRX CarbonBank is working on striking deals with the country’s major transportation companies, including ComfortDelGro and SMRT, after successfully registering its project with Verra on Sep 29. The green light from Verra, which is the world’s largest carbon credit certifier, means the project can start issuing credits whenever partner electric vehicles (EVs) utilise charging points involved with the project’s platform, dubbed EV Accelerator, or Eva. CRX CarbonBank’s chief executive Vinod Kesava told The Business Times (BT) that the company is working through details of selling the carbon credits on a per kilowatt-hour basis to platform participants at a cost equivalent to 0.5 per cent to 1.5 per cent of the price of charging.
Jobs growth in the US slowed more than expected in October, in part as strikes by the United Auto Workers (UAW) union depressed manufacturing payrolls. Meanwhile, wage inflation cooled, pointing to an easing in labour market conditions. Non-farm payrolls increased by 150,000 jobs last month, the Labor Department’s Bureau of Labor Statistics (BLS) said in its closely watched employment report on Friday (Nov 3). Data for September was revised lower to show 297,000 jobs created, instead of 336,000 as previously reported. Economists polled by Reuters had forecast payrolls rising 180,000. The US economy needs to create roughly 100,000 jobs per month to keep up with growth in the working-age population.
Hon Hai Precision Industry’s October sales slid, reflecting uncertainty in its business after Beijing launched an investigation into the world’s biggest iPhone assembler. Apple’s most important partner, also known as Foxconn, reported a 4.6 per cent decline in October revenue to NT$741.2 billion (S$31.2 billion). It is also sticking with a “significant growth outlook” for the December quarter, which is typically Hon Hai’s busiest because of year-end iPhone shipments. Apple’s latest iPhone 15 hit store shelves in September. “Operations will ramp up sequentially,” the company said in a brief statement, without elaborating. The investigation in China complicates Apple’s position in its largest international market and production base. Regulators there are conducting tax audits and reviewing land use by Foxconn, state media said on Oct 22.
Capital One Financial is seeking to sell more New York commercial real estate debt as property values fall. The McLean, Virginia-based bank is accepting bids for loans totalling nearly US$200 million, which includes debt backed by offices and apartments, according to marketing materials seen by Bloomberg News. Capital One has hired brokerage Jones Lang Lasalle to sell a US$120 million non-performing loan backed by five office buildings in the NoMad neighbourhood of New York City. The loan was originated in 2019 and is in default for failure to pay the principal balance in May.
Source: SGX Masnet, Bloomberg, Channel NewsAsia, Reuters, CNBC, WSJ, The Business Times, PSR
Recommendation: NEUTRAL (Maintained); TP S$12.50, Last close: S$12.19; Analyst Paul Chew
– 3Q23 PAT was down 35% YoY to S$63mn. The results were below expectations. YTD23 revenue and PAT were 70%/69% of our FY23e forecast. Soft demand and inventory adjustment continue to weigh down on revenue and earnings.
– The pace of decline should narrow in 4Q23e as contributions from new product introductions and supply chains transition from China to SE Asia.
– We cut our FY23e revenue and PATMI by 7% and 8%, respectively. We maintain our NEUTRAL recommendation. Our target price is lowered to S$12.50 (prev. S$15.20) due to our cut in earnings and a reduction in our PE ratio to 13x (prev. 15x). Venture’s valuation continued to de-rate as growth has stuttered over the past five years. The dividend yield of 6% is attractive and sustainable with its cash hoard of S$956mn.
Recommendation : ACCUMULATE (Upgraded); TP: US$194.00, Last Close: US$176.65
Analyst: Jonathan Woo
– 4Q23 results were within our expectations. FY23 revenue/PATMI were at 101%/100% of our FY23e forecasts. Services growth of 16% YoY was the standout.
– Services benefited from a higher installed base of >2bn active devices, while iPhone demand remains resilient – especially in China which saw record 4Q sales. iPad/Mac/Wearables remain a drag, with continued weakness moving into 1Q24e.
– We left our FY24e forecast unchanged but raised revenue/EBITDA by 5% for FY25e. We expect Services and iPhones to be the main drivers of growth and are encouraged by market share gains in China and India. As a result, we upgraded our rating from NEUTRAL to ACCUMULATE, with a raised DCF target price of US$194.00 (prev. US$$183.00), a WACC of 6.5%, and a terminal growth rate of 3%.
Recommendation: BUY (Maintained); TP: US$101.00
Analyst: Ambrish Shah
– 9M23 revenue/adj. PATMI was within expectation at 74%/73% of our FY23e forecasts. In 3Q23, revenue rose 8% YoY to US$7.4bn driven by 15% YoY surge in total payment volume to US$388bn. Venmo’s payment volume grew 7% YoY to US$68bn.
– For 4Q23e, PayPal expects total revenue to grow by 7.5% YoY to US$7.9bn. Gross margin pressure is expected to continue due to a business-mix shift towards unbranded checkout solutions like Braintree. Adj. EPS is expected to grow by 10% YoY to US$1.36 led by higher operating leverage.
– We maintain a BUY recommendation and nudge our DCF target price to US$101.00 (prev. US$98.00) using a WACC of 7% and terminal growth rate of 4%. Our FY23e revenue estimates remain unchanged, while we increase our EBITDA by 1% to reflect lower expenses. PayPal enjoys long-term tailwinds from two-sided network effects, a secular shift to cashless payments, as well as Venmo monetization initiatives like Tap to Pay and a payment option on Amazon.
Recommendation : NEUTRAL (Downgraded); TP: US$110.00, Last Close: US$107.83
Analyst: Jonathan Woo
– 3Q23 revenue was within expectations. 9M23 revenue at 72% of our FY23e forecasts. PATMI is at 17% on higher R&D expenses. 3Q23 PATMI increased 10x QoQ.
– PC recovery of 42% YoY is driving revenue, with early indicators of a market recovery. DC demand is stable on normalising inventory levels, and high demand for MI300 chips. Gaming and Embedded segments a drag on overall growth due to cyclical headwinds.
– Due to higher R&D and tax expenses, we cut our FY23e/FY24e EBITDA by 11%/14%, and also cut our FY23e PATMI by ~US$1bn. Given recent share price movements, and a prolonged drag by Gaming and Embedded segments on overall growth, we downgrade to a NEUTRAL rating from ACCUMULATE with a reduced target price of US$110.00 (prev. US$121.00). Our WACC/growth rate assumptions of 7.4%/3.5% remain unchanged.
Recommendation: BUY (Upgraded); TP: US$157.00
Analyst: Ambrish Shah
– 9M23 revenue/adj. PATMI exceeded expectations at 79%/91% of our FY23e forecasts. In 3Q23, revenue grew 18% YoY driven by a 14% YoY surge in booking volumes due to record travel demand over the summer season. Adj. PATMI spiked 32% YoY to US$1.6bn driven by higher operating leverage.
– For 4Q23e, Airbnb expects revenue to rise 13% YoY to US$2.15bn. Management also expects booking volumes growth rate to decelerate sequentially due to macroeconomic factors and geopolitical tension in the Middle East.
– We upgrade to BUY from ACCUMULATE recommendation after the recent fall in its stock price. We nudge our DCF target price to US$157.00 (prev. US$152.00) with a WACC of 7% and terminal growth of 4%. We increase our FY23e revenue/PATMI by 2%/116% to account for higher average daily rates and one-time income tax benefit. Airbnb benefits from the shift towards alternative accommodations as it offers record levels of active listings on its platform, benefits from travelers looking for long-term stays, and is more family and group travel-friendly.
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