Daily Morning Note – 6 September 2021

Dear valued client,

Asian stocks look set for a boost Monday from Japan, where the planned exit of the prime minister sparked a rally. Traders are also weighing the impact of sharply slower U.S. hiring on the stimulus outlook.

Futures for Japan jumped more than 1%, following a Topix index surge Friday to a three-decade high on hopes of better pandemic management and more spending by Prime Minister Yoshihide Suga’s successor. Futures for Hong Kong inched higher, but slipped for Australia. The dollar was steady.

U.S. contracts fluctuated. The S&P 500 ended little changed Friday, the Nasdaq 100 edged up to a record and Treasury yields rose as investors digested disappointing U.S. payroll growth coupled with faster-than-projected wage increases. U.S. markets are closed Monday for the Labor Day holiday and there is no cash trading for Treasuries.


SG News

Cryptocurrency exchange Binance said on Sunday that it will stop offering some products in Singapore after regulators said earlier in the week that the company may be in breach of the country’s Payment Services Act. Binance said in a blog post that it would be ceasing Singapore dollar trading pairs and payment options, as well as removing the app from Singapore iOs and Google Play stores as of Friday. Users have been advised to complete all related peer-to-peer trades and remove related trade advertisements by Thursday “to avoid potential trading disputes”. “Consumer protection is important to all of us,” Binance.com said in a statement. “We are ready to assist regulators from around the world and together find the optimal way to set a fair playing field.”

Troubled environmental solutions provider ecoWise Holdings has hired two independent directors, effective Sept 3. These appointments come after bourse regulator Singapore Exchange Regulation (SGX RegCo) slapped the company with a notice of compliance on June 25, ordering it to appoint two new independent directors, commission an internal audit and an audit of its first-half 2021 results and form a new auditing committee. The first appointment is Lo Kim Seng, as an independent non-executive director. Mr Lo was also appointed as the chairman of the remuneration committee, as well as a member of both the audit and nominating committees.

Troubled construction company Greatearth is being wound up – a week after its shock closure of five Build-To-Order (BTO) project sites that left around 2,900 buyers facing long delays for their homes. The move is also likely to leave many sub-contractors in the lurch, with few avenues open to recoup what are substantial losses for some. The winding-up process was triggered when Mr Goh Eng Hwee, the director of Greatearth Corporation and Greatearth Construction, filed a statutory declaration of the company’s inability to continue business. Three related companies – Greatearth, Greatearth Holding and Universal EC Investments – are also being wound up.

The Singapore Exchange (SGX) announced on Friday that it will amend its process of managing outstanding securities transactions when a clearing member is in default. Under the new rules, when a member defaults, the Central Depository (CDP) will set off this member’s outstanding buy- and sell-trades for each counter, regardless of whether the trades are due to customers or non-customers. This will reduce the number of transactions that the CDP must liquidate, thus reducing the impact on the market. This follows last November’s public consultation on the proposed changes, which received strong market support, said SGX in a statement. It had proposed then to liquidate a member’s outstanding trades in the event of that member’s default.

Electrical products trader and distributor Sunrise Shares Holdings on Friday announced that its wholly owned subsidiary, Sunrise Industrial, has changed its principal business activities from property fund management and collecting rental income from real estate investment trusts (Reits) to offering consultancy and management services in property and hospitality. Sunrise Industrial will also offer consultation services for investment and information, as well as real estate. Other key business activities include fund management services, land development and project management as well as property leasing and building construction, which includes design and renovation. The changes will enable Sunrise Industrial to explore business opportunities that are within the group’s core business, said Sunrise Shares in a bourse filing.

Grand Venture Technologies and its controlling shareholder, Metalbank Singapore, have entered into a placement agreement for the issuance and sale of ordinary shares in the company to raise up to S$39.9 million, the precision manufacturer announced in a bourse filing on Friday. Through the appointed placement agent CGS-CIMB Securities, the group intends to place out up to 25 million new shares at the issue price of S$1.14, amounting to a consideration of S$28.5 million. The new shares will represent 8.2 per cent of Grand Venture’s existing share capital, and represent 7.6 per cent of the enlarged base. Metalbank, which holds 94.95 million or 31.05 per cent of Grand Venture, has agreed to offer up to 10 million of its shares for the same issue price as part of the same placement agreement, amounting to a consideration of up to S$11.4 million.

US News

US hiring downshifted abruptly in August with the smallest jobs gain in seven months, complicating a potential decision by the Federal Reserve to begin scaling back monetary support by year end. Non-farm payrolls increased 235,000 last month, trailing all forecasts, after an upwardly revised 1.05 million gain in July, a Labor Department report showed on Friday. Employment in leisure and hospitality, which has posted strong gains recently, was flat amid the spreading Delta variant and persistent hiring challenges. The unemployment rate fell to 5.2 per cent from 5.4 per cent.

Oil prices fell on Friday after a weaker than expected US jobs report indicated a patchy economic recovery that could mean slower fuel demand during a resurgent pandemic. Losses were capped by concerns that US supply would remain limited in the wake of Hurricane Ida, which cut production from the U.S. Gulf of Mexico. Brent crude futures settled lower by 42 US cents or 0.58 per cent at US$72.61 a barrel. US West Texas Intermediate (WTI) crude futures were down 70 US cents or 1 per cent at US$69.29. Both benchmark oil contracts were largely steady for the week, with US crude up 0.80 per cent.

US companies including Lyft, American Airlines Group and Silicon Laboratories voiced their displeasure on Friday at new Texas laws on abortion, handguns and voting limitations, a fresh sign of increased efforts by some firms to signal their commitment to social responsibility. Lyft and Uber Technologies said they will cover all legal fees for the ride-hail companies’ drivers sued under a law that puts in place a near-total ban on abortion. Lyft will also donate US$1 million to women’s health provider Planned Parenthood, chief executive Logan Green said on Twitter. “This is an attack on women’s access to healthcare and on their right to choose,” Mr Green said of the new Texas law. Uber CEO Dara Khosrowshahi tweeted in response to Mr Green’s announcement that his company would cover drivers’ legal fees in the same way, thanking Mr Green for taking the initiative. The ban, which took effect Wednesday, leaves enforcement up to individual citizens, enabling them to sue anyone who provides or “aids or abets” an abortion after six weeks. This potentially includes drivers who unknowingly take women to clinics for abortion procedures.

US service providers expanded at a robust pace in August, though a step slower than the record rate seen a month earlier as a gauge of business activity moderated. The Institute for Supply Management’s services index fell to 61.7 last month from 64.1 in July. Readings above 50 indicate expansion. The figures suggest that concerns about the highly contagious Delta variant are cooling demand for some services like dining out, leisure and travel. The ISM gauge of business activity, which parallels the group’s factory production measure, fell to six-month low of 60.1. Service providers are also facing many of the same supply and labour constraints as manufacturers. Inventories contracted further in August, falling to the lowest level in a year, while a measure of services employment eased slightly.

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


Koufu Group – Partial recovery

Recommendation: Neutral (Downgrade), Last Done: S$0.65

Target price: S$0.64, Analyst: Terence Chua

– 1H21 revenue and net profit in-line, at 50.0% and 50.6% of our FY21e estimates.

– Increased takeaway and delivery sales mitigated lower footfall. 1H21 net profit 35% higher HoH despite Singapore’s move into Phase 2 (Heightened Alert).

– Temporary Occupation Permit (TOP) obtained for integrated facility. Operations to progressively commence from 3Q21.

– With safe management measures still in place, footfalls still at 65% of pre-Covid levels.

– Maintain NEUTRAL with unchanged target price of S$0.64. Still based on 18.5x FY21e, the average of its peers as we remain cautious on the pace of the reopening roadmap due to the resurgence of Covid-19 in Singapore and China. Potential re-rating from further relaxation of dine-in measures and increase in foreign travellers to Singapore.

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