DAILY MORNING NOTE | 8 August 2023

Singapore stocks ended higher on Monday (Aug 7), amid mixed trading in the region. Sembcorp Industries was the top gainer on the STI, climbing 8.8 per cent or S$0.49 to S$6.09. Meanwhile, the top decliner was Thai Beverage, which fell 4.2 per cent or S$0.025 to S$0.57. Venture Corporation was also one of the top decliners on the index, falling 3.4 per cent or S$0.49 to S$13.89. The trio of local banks ended Monday higher. DBS gained 0.3 per cent or S$0.10 to S$34.35, OCBC rose 0.6 per cent or S$0.08 to S$13.02, and UOB increased by 0.2 per cent or S$0.07 to S$28.87.

Wall Street stocks advanced on Monday as investors focused on corporate earnings and looked ahead to US inflation data due later in the week. The Dow Jones Industrial Average surged 1.2 per cent to 35,473.13, while the broad-based S&P 500 climbed 0.9 per cent to 4,518.44. The tech-heavy Nasdaq Composite Index picked up by 0.6 per cent to 13,994.40. Markets retreated on Friday following mixed official employment figures that showed an easing but still tight labour market – suggesting the Federal Reserve could continue keeping interest rates high to cool the economy.

SG

Mapletree Logistics Trust (MLT) will divest Century, a 17-year-old industrial building in Selangor, Malaysia, for RM60 million (S$17.7 million). The sale price is 15.4 per cent higher than its latest valuation of RM52 million as at Mar 31, 2023. The manager said that it has chosen to waive the 0.5 per cent one-off disposal fee that it is entitled to from the sale. It added that the proposed divestment is expected to be completed by FY2023/2024, and that it is not expected to have a material impact on MLT’s net asset value and net property income.

Healthcare services provider TalkMed Group posted a 17.7 per cent rise in net profit to S$14.3 million for the six months ended Jun 30, 2023, up from S$12.1 million in the corresponding period a year earlier. The rise in net profit came on the back of higher revenue of S$37.8 million, up 16.4 per cent from the S$32.5 million that the group posted the year before. In a bourse filing on Monday (Aug 7), the group said that revenue grew as there were no travel restrictions in the first half of this year, while such restrictions were still in place until April 2022. By segment, the group saw revenue from oncology services climb 19.9 per cent to S$37.5 million. The group said that while its oncology segment saw patient numbers improve, it has yet to see numbers return to pre-pandemic levels.

Chocolate confectionery company Delfi posted a net profit of US$25.2 million in the first half of its 2023 financial year ended Jun 30, up 30.1 per cent from the corresponding period last year. Delfi said in a bourse filing on Monday (Aug 7) that the strong performance was on the back of a 16.2 per cent year-on-year increase in revenue to US$286.2 million and a 60 basis point rise in gross profit margin to 30 per cent, fuelled by strong sales of premium products. The group also attributed its bottom-line performance to revenue growth in its own brands and complementary agency brands, with the former climbing 11.4 per cent year on year to US$168.1 million and the latter by 23.8 per cent to US$118.1 million.

Property developer OUE reported a 54.6 per cent decrease in net profit to S$40.2 million for the half year ended Jun 30, 2023, from S$88.7 million in the corresponding period a year ago. The decline in net profit came despite a 53.3 per cent rise in revenue to S$304.5 million, from S$198.7 million a year ago. In a bourse filing on Monday (Aug 7), the group said that the year-on-year decline in net profit was mainly due to a lower share of results of equity-accounted investees, higher finance expenses, lower net change in fair value of investments designated at fair value through profit or loss as well as lower net change in fair value of investment properties. Still, the group saw higher revenue contribution across all its business segments.

The manager of Lendlease Global Commercial Reit (Lendlease Reit) posted a distribution per unit (DPU) of S$0.0225 for the second half of FY2023 ended June 2023, down 8 per cent from S$0.0245 in the corresponding period a year earlier. Distributable income rose 21.6 per cent to S$52.2 million, from S$42.9 million a year earlier, while gross revenue climbed 65.1 per cent to S$103.1 million over the same period. In a bourse filing on Monday (Aug 7), the Reit manager attributed the higher gross revenue to the acquisition of Jem in April 2022, as well as the easing of Covid-19 measures. However, this was offset by lower revenue from Sky Complex in Milan as the euro weakened against the Singdollar.

Paragon Reit posted a 15.7 per cent decrease in distribution per unit (DPU) to S$0.0242 for the first half of its 2023 financial year ended Jun 30, from S$0.0287 in the same period last year. The DPU translates to a distribution yield of 5.1 per cent, based on the real estate investment trust’s (Reit) closing price of $0.96 as at June 30. The latest distribution will be paid out on Sep 22. In a bourse filing on Monday (Aug 7), the Reit’s manager said the fall in DPU was primarily due to higher finance costs amid the current high interest rate environment. The income available for distribution had shrunk by 13.8 per cent to S$70.6 million, from S$82 million in the corresponding period last year. Finance costs also hiked by S$14.7 million to S$25.5 million in H1 2023, from S$10.9 million in the year-ago period.

US

Payments company PayPal on Monday (Aug 7) launched a US dollar stablecoin in a bid to boost the adoption of digital currencies for payments and transfers. The stablecoin, known as PayPal USD, is backed by US dollar deposits and short-term US Treasuries, and will be issued by Paxos Trust Co, said the company. PayPal’s shares rose 1.4 per cent to US$63.66. PayPal USD is pegged to the US dollar and will gradually be available to the company’s customers in the United States, the digital payments business said.

The US dollar rose on Monday (Aug 7) after a mixed US jobs report on Friday sent the US currency to a one-week low, with market focus turning to inflation data from the world’s two largest economies due this week. The US dollar recovered from a one-week low hit on Friday in the aftermath of the data showing the US economy added fewer jobs than expected in July, with its daily losses limited by signs of solid wage gains and a decline in the unemployment rate. That suggested the Federal Reserve may need to keep rates higher for longer. The US dollar index, measuring the greenback against a basket of other major currencies, was last 0.25 per cent higher at 102.31, moving away from Friday’s low of 101.73. US inflation data is due on Thursday, where expectations are for core inflation of 4.7 per cent on an annual basis in July.

Tyson Foods missed Wall Street expectations for third-quarter revenue and profit on Monday (Aug 7), hurt by falling chicken and pork prices as well as slowing demand for its beef products. The company said it is closing four more US chicken plants in a bid to reduce costs. Shares were down nearly 6 per cent premarket. Some consumers have been turning more cautious and pulling back on meat purchases as inflation and higher interest rates squeeze household budgets, hurting sales at multinational meat producers like Tyson and Hormel Foods. The company has struggled to predict sales and previously said reduced demand for beef made it difficult to pass on higher costs to consumers.

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

RESEARCH REPORTS

Oversea-Chinese Banking Corp Ltd – Higher NII and insurance income

Recommendation: Buy (Maintained), Last done: S$13.04, TP: S$14.96, Analyst: Glenn Thum

– 2Q23 earnings of S$1.71bn were slightly above our estimates. It came from higher net interest income and insurance income offset by lower fee income and higher allowances. 1H23 PATMI was 53% of our FY23e forecast. 2Q23 DPS was up 43% YoY to 40 cents. We raise our FY23e DPS from S$0.80 to S$0.85.

– NII grew 41% YoY as NIM surged 55bps YoY to 2.26% and loan growth remained flat YoY. NIM guidance was raised from 2.20% to above 2.20%. Allowances rose 250% due to higher GPs (and management overlays) as credit costs increased 23bps YoY to 31bps.

– Maintain BUY with an unchanged target price of S$14.96. We raise FY23e earnings by 4% as we increase NII estimates for FY23e due to higher NIMs and lower expenses, offset by lower fee income estimates. We assume 1.29x FY22e P/BV and ROE estimate of 10.8% in our GGM valuation. Catalysts include continued interest income growth and fee income recovery as economic conditions improve. OCBC is our preferred pick among the three banks due to attractive valuations and dividend yield of 6.5%, buffered by a well-capitalised 15.4% CET 1, and fee income recovery from China’s re-opening.

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