Daily Morning Note – 7 March 2022

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Bitcoin extended its losses on Friday, falling below $40,000 with investors concerned about the worsening war between Russia and Ukraine, after Russian troops seized Ukraine’s largest nuclear power plant. The cryptocurrency BTCUSD, -1.74% was trading Friday afternoon New York time at around $39,844 or down 5.4% over the past 24 hours, according to CoinDesk data. Bitcoin prices have shown a relatively high correlation with growth stocks for the past few months. U.S. stock indexes were down sharply Friday afternoon. The Dow Jones Industrial Average DJIA, -0.53% dropped 1.1%, the S&P 500 index SPX, -0.79% lost 1.3%, while the Nasdaq Composite Index COMP, -1.66% declined about 2%.

A combination of unrelated forces is raising the likelihood that higher-than-normal U.S. inflation could turn durable, lasting anywhere from a few years to a full decade, according to investors bracing for next week’s latest update on price gains.

Traders expect Thursday this coming week to bring the first in a string of annual consumer price index headline figures close to or above 8%. Derivative-like instruments known as “fixings” imply the year-over-year rate for February is likely to be 7.9%, followed by 8.3% for March and 8% for April. That would be the longest stretch of such high readings since September 1978 to January 1982, when the U.S. stagflation that lasted a decade wound down.

Top gainers & losers




Institutional investors continue to net buy S-Reits. The iEdge S-Reit Index recovered 2.5 per cent in total returns over the past 5 sessions (Feb 25, 2022 through to Mar 3, 2022), after a 2 per cent decline seen last Thursday (Feb 24) as global markets saw major moves amid the market volatility. Despite the dip, the iEdge S-Reit Index has returned 0.6 per cent in total returns for the whole period from Feb 24, 2022 through to Mar 3, 2022. This means it outperformed the FTSE EPRA Nareit Asia ex-Japan Index which declined 0.7 per cent during the same period. Within the S-Reit sub-sectors, gainers were led by the specialised, healthcare and office Reits while decliners were led by hospitality, retail and diversified Reits. During the period, institutional investors have been a key driver in S-Reits’ fund flow activities, accumulating net institutional inflows of S$30.4 million. Retail investors on the other hand, net sold S$42.6 million for the sector. On a year-to-date basis, S-Reits have seen a 2 per cent decline, against the Straits Times Index’s 4.4 per cent total returns, while the FTSE EPRA Nareit Asia ex-Japan Index has seen a decline of 2.3 per cent.

The voluntary cash offer to acquire all the shares of Shinvest Holding by its substantial shareholders has turned unconditional in all respects, according to a bourse filing late on Friday (March 4). The filing stated that the total number of shares owned, controlled, acquired or agreed to be acquired by the offeror and its concert parties represented around 55.4 per cent of the total number of issued shares, as at 9 pm on Friday. As this has exceeded 50 per cent of the maximum potential number of Shinvest shares, the offer has been declared unconditional in all respects. The closing date for the offer has also been extended by 2 weeks, to 5.30 pm on Apr 13. Shinvest Holding, together with its subsidiaries, is an industrial group that operates as a stockist, distributor and manufacturer of a wide range of industrial fasteners. The group serves customers in Singapore as well as in the US, Europe, Malaysia, Indonesia and China.

Learning solutions company Alpha DX Group said on Saturday (March 5) that it has received a letter of statutory demand from the lawyers for Kydon Holdings, in relation to payment of a sum of S$1.9 million. It noted in the bourse filing that Kydon Holdings has demanded payment within 3 weeks from the date of the letter on March 4, failing which it may commence winding up proceedings against Alpha DX. The letter of statutory demand is for fees allegedly owed by Alpha DX. Kydon Holdings is seeking payment of the sum of S$1,900,377.08 relating to the remaining consideration and interest charges for the acquisition of Kydon Learning Systems Institute – now known as Zionext.

Mapletree Investments Pte Ltd, a Singapore-based property developer and manager, has selected advisers for a potential initial public offering (IPO) of a student housing real estate investment trust (Reit) that could raise about US$1 billion, according to people familiar with the matter. The company, which is owned by Temasek Holdings, is working with DBS Group Holdings, HSBC Holdings, OCBC Bank and UBS Group on the planned share sale in Singapore, the people said. An IPO could take place as soon as in the second half of the year, the people said, asking not to be identified as the information is private. A successful IPO would make it Singapore’s biggest Reit listing since 2013, when another of Mapletree’s trusts raised US$1.4 billion, Bloomberg data show.

Retail sales in Singapore expanded at a faster pace in January compared with the previous month, bolstered by spending ahead of the Chinese New Year (CNY) festive period. Takings at the till rose 11.8 per cent in January from the same month last year, a jump from the 6.7 per cent increase last December. The outcome was way better than the 6.94 per cent average estimate of analysts polled by Bloomberg. Excluding motor vehicles, retail sales increased by 15.8 per cent, compared with the 8.6 per cent growth in December, according to figures released by the Department of Statistics (SingStat) on Friday (March 4).


History suggests oil shock raises probability of US recession. Historically, a surge in crude-oil prices of this magnitude have ended US economic expansions and tipped the US economy into recession, according to Pictet Asset Management. In the past 50 years, every time oil prices, adjusted for inflation, rose 50 per cent above trend, a recession followed, data from Luca Paolini, chief strategist at Pictet, show. Brent, the international gauge for prices, topped US$110 a barrel this week, crossing that threshold on worries about disruption to Russia’s exports after the country invaded Ukraine. Brent has rallied more than 45 per cent this year to decade highs. West Texas Intermediate (WTI), the US gauge, has climbed nearly 50 per cent in 2022.

Australian utility AGL Energy Ltd. rejected an improved multibillion-dollar takeover approach from Brookfield Asset Management Inc. and billionaire Mike Cannon-Brookes, who wanted to accelerate the firm’s transition to net-zero emissions by more than a decade. The consortium made a second offer of A$8.25 ($6.08) a share — an 11% premium to Friday’s close and higher than the A$7.50 tabled last month, Cannon-Brookes said Sunday in a Tweet. He indicated that another proposal probably won’t be forthcoming. The proposal is still well below the fair value of the company, Sydney-based AGL said Monday in a statement. The consortium’s offer valued AGL’s equity at about A$5.4 billion, according to Bloomberg calculations.

The Federal Reserve will report consumer credit data for January on Monday, 7 March 2022. Total consumer debt is expected to rise $20 billion to a record $4.44 trillion. Following a slight decline in 2020, consumer credit increased 5.9% last year.

Moody’s cut its credit rating on Russia to “Ca” on Sunday (Mar 6) and kept a negative outlook, citing central bank capital controls that would restrict cross-border payments including on debt. The downgrade is “driven by severe concerns around Russia’s willingness and ability to pay its debt obligations”, the rating agency said, adding that default risks had increased. “The likely recovery for investors will be in line with the historical average, commensurate with a ‘Ca’ rating. At the ‘Ca’ rating level, the recovery expectations are at 35- 65 per cent,”Moody’s added.

Card payment giants Visa and MasterCard announced on Saturday (Mar 5) they will suspend operations in Russia, the latest major US firms to join the business freeze-out of Moscow over its invasion of Ukraine. “Noting the unprecedented nature of the current conflict and the uncertain economic environment,” Mastercard said it had “decided to suspend our network services in Russia”. Visa, for its part, said that “effective immediately” it would “work with its clients and partners within Russia to cease all Visa transactions over the coming days”. Major corporations across a range of industries have halted business in Russia since its invasion began on Feb 24, including everything from US-based tech firms such as Intel and Airbnb to French luxury giants LVMH, Hermes and Chanel.

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

ComfortDelGro Corp Ltd – Still our recovery + reopening proxy

Recommendation: BUY (Maintained); TP S$1.80, Last close: S$1.41; Analyst Paul Chew

– FY21 revenue and PATMI was 103%/75% respectively of our forecast. Excluding the one-offs, FY21 earnings were around 10% below expectations. The one-offs are an estimated S$27mn (disposal loss of buses, impairment and IPO expenses).

– Taxi rental rebates in FY21 were S$87mn. We expect rebates to decline to S$15mn-20mn in FY22e.

– In the past two years of the pandemic, the company has generated S$905mn in FCF. We expect FY22e to be an even stronger year of recovery. Reduction in taxi rebates, normalisation of social and work activities, re-opening of borders and lower depreciation will be key drivers to earnings. Our FY22e PATMI is lowered by 10% to S$231mn as we assume higher electricity and staff costs. FY22e revenue is relatively unchanged. Our DCF target price (WACC 8%) of S$1.80 is unchanged

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