Daily Morning Note – 7 Sep 2020
PHILLIP SUMMARY
US stocks ended lower again Friday, with tech shares tumbling in a continued selloff ahead of the holiday weekend, shrugging off data showing US unemployment falling more than expected in August. At the closing bell, Dow Jones Industrial Average shed 0.6 per cent to finish the week at 28,133.31, while the broad-based S&P 500 dropped 0.8 per cent to 3,426.96, both recouping from the day’s low point.
The tech-rich Nasdaq Composite Index fell 1.3 per cent to end at 11,313.13, adding to the losses from Thursday’s 5.0 per cent rout. Markets are closed Monday for Labour Day.
BREAKING NEWS
Ryanair has raised 400 million euros (S$646 million) from shareholders to strengthen its balance sheet as it eyes potential market opportunities in the wake of the Covid-19 pandemic, Europe’s largest low-cost carrier said on Friday. The move adds to a large cash pile at an airline that has been less badly affected by the pandemic than many of its rivals owing to its relatively low level of debt and lack of exposure to the badly hit long-haul and business-class markets.
Volkswagen’s Traton plans to make a fresh push to acquire Navistar International after talks were put on hold amid the coronavirus pandemic, according to people familiar with the matter. Volkswagen’s heavy-truck business is seeking to restart negotiations this month to win over Navistar’s management and the main shareholders, including billionaire investor Carl Icahn, said the people, asking not to be identified because deliberations are private.
ASIAN stocks struggled on Friday, after US equities tumbled by the most in almost three months, as nervous investors took profit on tech stocks amid concerns over their lofty valuations. In New York, the S&P 500 broke a 10-day winning streak and fell 3.5 per cent on Thursday.
CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust (CCT) on Friday announced deal sweeteners for their proposed merger, such as higher accretion to their respective distribution per unit (DPU), and the decision of CMT’s manager to completely waive the acquisition fee of S$111.2 million.
Frasers Centrepoint Trust’s (FCT) proposed acquisition of the rest of AsiaRetail Fund (ARF) will boost the real estate investment trust (Reit)’s suburban portfolio even as suburban malls are expected to recover more strongly from the negative impact of Covid-19 than their centrally located peers.
GIC has joined a consortium of institutional investors, led by Hillhouse Capital Group, to invest around US$418 million through a private placement in Nasdaq-listed I-Mab, a clinical stage biopharmaceutical company.
Telcos StarHub and M1 have been slapped with fines totalling S$610,000 for Internet service disruptions during the “circuit breaker” period in Singapore, when a majority of people were working and studying from home. StarHub received a penalty of S$210,000 while M1 was fined S$400,000 for contravening the Code of Practice for Telecommunication Service Resilience 2016, said the Infocomm Media Development Authority (IMDA) on Sunday.
Source: SGX Masnet, The Business Times, Bloomberg, Channel NewsAsia, Reuters, PSR
TECHNICAL PULSE
Technical Analysis: Singapore Stocks – 2,500 remain supported but many attempts at this level weakens the support.
Analyst: Chua Wei Ren
– Singapore’s stock market briefly made an attempt to rebound after the STI open below 2,500.
– However, the Straits Times Index fails to close above the Thursday low despite a bullish candle spotted. As such, the STI’s bullish sentiment may not be that strong.
– 2573.51-2,600 resistance zone remain the key level to determine STI’s make or break direction.
Technical Analysis: U.S Market – Still in a bullish trend
Analyst: Chua Wei Ren
– The U.S markets suffered heavy selling last Thursday. It continued into the first half of the trading session on Friday.
– The sell-down is in reaction to the technology stocks as it has gotten way overheated.
– Based on the technical, the market is still well within the bullish trend. Except for Dow Jones Industrial average which has failed to clear above the March 2020 high.
– On the S&P 500, we maintain our 3700 target. We expect Nasdaq to resume its upward move to test the immediate resistance of 12,500
>> Read more technical reports
RESEARCH REPORTS
Singapore Banking Monthly – Long and gradual recovery ahead
Recommendation: NEUTRAL (Maintained); Analyst: Tay Wee Kuang
– Current levels of 3M-SIBOR and 3M-SOR at 0.41% and 0.21% remain at stabilised levels throughout 3Q20.
– Singapore saw a second consecutive month of negative loans growth (-0.3% YoY). Business loans rebound to grow 1.48% but weak consumer loans (-3.13%) continue to weigh on loans outlook.
– Credit rating agency Fitch contemplates ‘AA-’ rating of three local banks on poorer operating environment. However, Fitch’s outlook guidance is in line with outlook provided by the banks in 1Q20.
– FTSE Taiwan Index Futures launched in July is the sixth most traded equity index futures contract on SGX in August.
– Maintain the Singapore Banking Sector at NEUTRAL. Resumption of business activities will lift non-interest income despite likelihood of prolonged low interest rates putting a drag on interest income.
Frasers Centrepoint Trust – Doubling the suburban portfolio
Recommendation: ACCUMULATE (Maintained), Last Done: S$2.64
Target Price: S$2.79, Analyst: Natalie Ong
– Proposed acquisition of remaining 63.1% stake in ARF and divestment of Bedok Point to lift FY22e-24e DPU by 2.9% to 3.7%.
– The transaction will further entrench FCT in the resilient suburban retail sector and strengthen FCT’s portfolio by reducing asset concentration risk.
– Maintain ACCUMULATE with a higher TP of $2.79 (prev. $2.69). We previously forecasted c.20% of FY20 distributable earning to be retained in FY20 and disbursed in FY21. Given the sustained recovery, we opine that the FCT will be able to disburse all of FY20’s distributable earnings – as such FY21e DPU was lowered by 1.4% while FY20e DPU was raised by 12.3%. FY22e to FY24e DPU was increased by 2.9% to 3.7% due to the accretive acquisition of the remaining 63.1% stake in ARF and subsequent divestment of Bedok Point.
Micro-Mechanics (Holdings) Ltd – A new growth driver emerges
Recommendation: BUY (Upgraded), Last Done: S$2.20
Target Price: S$2.50, Analyst: Paul Chew
– 4Q20 earnings met our expectations. PATMI jumped 48% YoY in 4Q20 to S$3.9mn.
– Gross margins have recovered to their highest levels in seven quarters. We believe higher prices was a reason for the improvement.
– We are upgrading MMH to BUY. We are expecting record earnings for MMH. Firstly, the existing backend business is enjoying a recovery in sales and gross margins; Secondly, after several years of development, we believe the US operation has secured a significant breakthrough in new front-end projects and customers. It will be a new growth segment for MMH. Our target price is revised upward from S$1.60 to S$2.50, or 18x PE FY21e. FY21e earnings has been raised by 25%.
Mapletree Logistics Trust – Unphased by the pandemic (Credit View)
Credit Analyst: Timothy Ang
– Revenues rose 10.5% YoY to S$132.4mn, EBIT grew 17.6% YoY to S$96.3mn on higher margins of 72.7%, up 4.4%.
– Gearing (D/A) including perpetuals remained stable, up 0.3% to 42.9% despite net debt issuance. Borrowing cost rose 6.5% QoQ on higher borrowings for acquisitions.
– Occupancies remained healthy at 97.2% from 98.0% previous quarter, and rental reversions was positive 1.9%, vs 2.0% previous quarter.
– We are Overweight on the MLTSP 4.18% Perp Corp (SGD) with a yield to call of 3.15% and yield to worst of 3.08%, and Neutral on the MLTSP 3.65% Perp Corp (SGD) with YTC of 3.31% and YTW of 2.76%.
HK Reports – Read up on our Hong Kong reports here
RESEARCH VIDEOS
Webinar Of The Week
Market Outlook: (PSR) CMT/CCT, Prime US REIT, SATS, Clearbridge, SG Banking, SG Bonds, Technicals and more
Date: 31 August 2020
Phillip Research in 3 minutes: #25 – Prime US REIT; Initiation
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