DAILY MORNING NOTE | 8 January 2024

Trades Initiated in the past week

Factsheets



Week 2 Equity Strategy

US new orders of non-defence capital goods excluding aircraft turned in a positive +0.8% MoM growth in Nov, after two months of decline. But shipments still fell -0.2% MoM. Since Nov 22, the value of new orders had fallen below shipments. This does not encourage capex spending, and could depress future growth.

The incidents in the Red Sea have led to diversion/suspension of shipping routes through the Suez Canal, and routing via the Cape of Good Hope, which take 13 weeks of shipping time (from 10 weeks) for a round trip (Asia-Europe). Potential impact: 1) higher shipping rates; 2) divert time-sensitive cargo to airfreight; 3) more stocking up to cushion any supply chain disruptions; 4) port congestions and container shortage at some ports, if the disruption prolongs. SCFI had doubled in the last two weeks. The disruption will increase business costs, but customers might be ordering more to build a buffer. Near term beneficiaries are: 1) shipyards – less risk of cancellations of existing orders; 2) shipping lines that ply the Asia-Europe route, such as Maersk; and 3) air cargo operators.

In Singapore, URA’s flash estimates indicated prices of non-landed properties rose 2.2% QoQ in 4Q23, or +6.5% YoY in FY23 (FY22: +8.1%). Price increase in 4Q23 was driven mainly by the new launches. Total transactions fell 15.4% to 18,510 units in FY23, the lowest since 2016. About 100,000 new public and private housing units will be completed between 2023 and 2025, 52% higher than 2020-2022. The new supply will take transaction volume higher in FY24e, positive for property agencies.

Peggy Mak
Research Manager
peggymak@phillip.com.sg


Singapore stocks rose 0.3 per cent and snapped their losing streak in 2024 on Friday (Jan 5). Yangzijiang Shipbuilding led the gainers, rising 2.7 per cent or S$0.04 to close at S$1.55. Other top performers included Venture Corp and Sembcorp Industries, which rose 1.2 per cent and 1.1 per cent respectively. The local banks were also among the gainers, with OCBC, DBS and UOB rising between 0.5 and 0.9 per cent.

Wall street stocks ended Friday modestly higher, but all three of the major averages snapped a nine-week winning streak following a stronger-than-expected jobs report. The S&P 500 rose 0.18% to end at 4,697.24, while the Nasdaq Composite added 0.09% to finish at 14,524.07. The Dow Jones Industrial Average ticked higher by 0.07%, settling at 37,466.11. The three major averages notched their first negative week in 10, with the Nasdaq suffering the biggest decline at 3.25% — its worst weekly performance since September. The S&P 500 and Dow dropped 1.52% and 0.59%, respectively.

Top gainers & losers

Factsheets


Events Of The Week

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SG

Palm oil producer First Resources has bought, through an indirect subsidiary, plantation assets held by Indonesian palm oil company PT Tri Bakti Sarimas for a cash consideration of 1.9 trillion rupiah (S$162.8 million). The assets include mills, plantations and an unplanted land bank spanning around 17,600 hectares in Riau province, Indonesia. The deal was concluded on Dec 28, 2023, via a public auction conducted by the Indonesia government for the execution of mortgage rights held by a bank, said First Resources in a bourse filing on Friday (Jan 5). It was funded by internal resources and is not expected to have any material impact on the company’s net tangible assets and earnings per share for FY2023.

Chinese property developer Yanlord Land Group logged 32.4 billion yuan (S$6.1 billion) in total contracted pre-sales in the financial year ended December 2023. The figure is down 52.5 per cent from the 68.1 billion yuan it recorded a year ago. Based on the group’s unaudited key operating figures filed on Friday (Jan 5), the pre-sales were for a contracted gross floor area (GFA) of about 1.2 million square metres (sq m), a 13.7 per cent drop from the previous year. The developer, together with its joint ventures and associates, also recorded around two billion yuan of subscription sales as at Dec 31, 2023. This is expected to turn into property contracted pre-sales in the following months, said Yanlord.

HRnetGroup Limited announced the successful registration for licensed employment services business of the Hsinchu branch of its subsidiary RecruitFirst (Taiwan) Pte Ltd (RFT) on Friday (Jan 5). This is to further accelerate the rapid growth of RFT in the flexible staffing space. RFT was incorporated in Singapore in 2019 and now has 3 branches in Taipei, Kaohsiung and Hsinchu. For the 4th year in a row, RFT received Grade A in Taipei City Government Accreditation of Private Employment Service Agencies for 2023.

Further to its announcements on 2 October 2023 and 9 November 2023, Singtel announced on Friday (Jan 5) that its indirect wholly-owned subsidiary, Singtel Enterprise Security (US), Inc., has completed the divestment of all its equity interest in Trustwave Holdings, Inc. to MC2 Titanium LLC. With the completion of the Trustwave Divestment, Singtel has ceased to hold any equity interest in Trustwave.

Fitch Ratings has re-rated Lippo Malls Indonesia Retail Trust’s (LMIRT) long-term issuer default rating to “CC” from “RD”, after downgrading it to “RD” from “C” following the completion of a tender offer. The “CC” rating, indicating high levels of credit risk, is to reflect the increasing likelihood of a debt restructuring, given the low take-up rate of the tender offer, said Fitch in a report on Friday (Jan 5). It also shows that Fitch expects the Singapore-listed trust to be unlikely to raise sufficient funding to repay the remaining US$188.3 million of unsecured notes maturing on Jun 19, 2024, at par value.

Keong Hong Holdings Limited announced on Friday (Jan 5) that its wholly-owned subsidiary, Keong Hong Construction Pte Ltd, has been awarded the tender for main contract works by Housing & Development Board for a contract sum of S$293,730,000. The scope of the Project covers the Building Works at Tengah Plantation Contract 5 and Common Green, and Contingency Works. The construction period of the Project is 42 months, commencing 19 January 2024. The Project is not expected to have any material impact on the consolidated net tangible assets per share and consolidated earnings per share of the Group for the financial year ending 30 September 2024.


US

The U.S. labor market closed out 2023 in strong shape as the pace of hiring was even more powerful than expected, the Labor Department reported Friday. December’s jobs report showed employers added 216,000 positions for the month while the unemployment rate held at 3.7%. Economists had been looking for payrolls to increase by 170,000 and the unemployment rate to nudge higher to 3.8%. The report showed that inflationary pressures, despite receding elsewhere, are still prevalent in the labor market. Average hourly earnings rose 0.4% on the month and were up 4.1% from a year ago, both higher than the respective estimates for 0.3% and 3.9%.

U.S. Congressional leaders announced a US$1.59 trillion deal on top-line spending Sunday as the government races to avoid a potential shutdown. The deal establishes an overall spending budget of US$1.59 billion for the 2024 fiscal year, allocating US$886 billion to military spending and US$704 billion for non-defense spending, said Republican House Speaker Mike Johnson of Louisiana said in a Sunday note. The deal comes as the House and Senate inch closer to a key Jan.19 deadline, when funding runs out for many federal agencies. Funding for the rest of the government expires on Feb. 2.

Top oil exporter Saudi Arabia on Sunday (Jan 7) cut the February price of its flagship Arab Light crude to Asian customers to the lowest level in 27 months, a company statement showed, amid competition from rival suppliers and concerns about supply overhang. Saudi Aramco slashed the official selling price (OSP) for February-loading Arab Light to Asia by US$2 a barrel from January to US$1.50 a barrel over Oman/Dubai quotes, a level last seen for November 2021. The price cut, the biggest in 13 months, is in line with market expectations, as refiners called for competitive prices from Saudi Arabia comparing to crude oil supplied from other Middle Eastern producers and the arbitrage cargoes from the Atlantic Basin.

The US air safety regulator announced on Saturday (Jan 6) that it was grounding some Boeing 737 MAX 9 airplanes pending inspections, a day after a panel blew out of one of the planes over the western state of Oregon. The Federal Aviation Administration (FAA) “is requiring immediate inspections of certain Boeing 737 MAX 9 planes before they can return to flight”, the agency said on social media platform X. The agency said around 171 aircraft worldwide would be affected, with each inspection taking four to eight hours. Alaska and United Airlines fly the largest number of MAX 9 planes, while Icelandair and Turkish Airlines have smaller fleets of the aircraft. Boeing has so far delivered about 218 737 MAX 9 planes worldwide.

Apple supplier and lead iPhone assembler Foxconn on Friday reported a revenue drop for the final quarter of 2023 and said it expects a year-over-year decline in sales for its first quarter of 2024. Foxconn revenue for the last three months of the year totaled NT $1.85 trillion (US$59.7 billion), a 5.4% dip from the year-ago period. Foxconn attributed the decrease to weak or flat sales in its computing products, smart consumer electronics products and cloud and networking products. The company’s December revenue also fell 27% year over year.

Tesla is recalling more than 1.6 million cars in China to fix problems with Autopilot features and locks, state regulators announced Friday. Both issues can be repaired through a free over-the-air software update, so drivers do not have to take their vehicles anywhere, regulators said. China’s State Administration for Market Regulation said the recall impacts Tesla’s Model S, Model X, Model 3 and Model Y vehicles where drivers can “misuse” a driving assistance feature, “increasing the risk of vehicle collision and posing safety risks,” according to a release. Additionally, more than 7,500 Model S and Model X cars were recalled over concerns that, during a crash, the noncollision side door will unlock.

Coinbase plans to offer crypto-linked derivatives in the European Union, and it’s planning to acquire a company with a license to do so. The U.S. cryptocurrency exchange said that it entered into an agreement to buy an unnamed holding company which owns a MiFID II license. MiFID II refers to the EU’s updated rules governing financial instruments. The company has been seeking to expand its offering to institutions such as hedge funds and high-frequency trading firms over the last several years, looking to benefit from the much higher sizes of transactions done by these kinds of traders. If and when Coinbase completes the deal, the move would mark the first launch of derivatives trading by the company in the EU. With a MiFID II license, Coinbase will be able to begin offering regulated derivatives, like futures and options, in the EU. The company already offers spot trading in bitcoin and other cryptocurrencies. The deal is subject to regulatory approval and Coinbase expects it will close later in 2024.

Danish shipping giant Maersk said on Friday (Jan 5) it would extend its diversion of vessels from the Red Sea for the “foreseeable future” due to safety concerns amid a spate of attacks by Houthi militants. “The situation is constantly evolving and remains highly volatile, and all available intelligence at hand confirms that the security risk continues to be at a significantly elevated level,” Maersk said in a statement. It added that it hoped to now bring customers “more consistency and predictability,” despite delays to deliveries.

OpenAI and its financial backer Microsoft were sued on Friday (Jan 5) in Manhattan federal court by a pair of nonfiction authors who say the companies misused their work to train the artificial-intelligence models behind the popular chatbot ChatGPT and other AI-based services. Writers Nicholas Basbanes and Nicholas Gage told the court in a proposed class action that the companies infringed their copyrights by including several of their books as part of the data used to train OpenAI’s GPT large language model. The lawsuit follows several others filed by fiction and nonfiction writers ranging from comedian Sarah Silverman to “Game of Thrones” author George R.R. Martin against tech companies over the alleged use of their work to train AI programs. The New York Times also sued OpenAI and Microsoft last week over the use of its journalists’ work to train AI applications.

Chinese wealth manager Zhongzhi Enterprise Group has filed for bankruptcy liquidation after failing to repay debt, as the firm grapples with a deepening property market downturn. Zhongzhi applied for bankruptcy on the grounds it could not pay its due debts and its assets were insufficient to pay all its debts, a court in China’s capital Beijing said in a statement on Friday. The court said it accepted Zhongzhi’s bankruptcy liquidation application in accordance with China’s enterprise bankruptcy law.

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


RESEARCH REPORTS

Far East Hospitality Trust – Resilient balance sheet and ready to acquire

Recommendation: BUY (Initiate), Last Done: S$0.66

Target price: TP: S$ 0.79, Analyst: Liu Miaomiao

– Forward booking for 2H23 and 1H24 was healthy on the back of the recovery of flight capacity and a series of upcoming events. Hotel RevPAR is anticipated to reach 97% of pre-pandemic levels and serviced residence is already at 122% of the pre-COVID level.

– Downside risk is protected by the master lease structure and the fixed component alone is expected to generate c.4% of the dividend yield. Due to low gearing of 32%, FEHT also alluded to potential mid-size acquisition in Japan, we expect a positive carry of c.2%.

– S$18.0mn incentive fee generated from Central Square’s divestment was set to cushion the erosion of DPU due to the high interest rate, aiming for a FY23e target dividend yield of c.6%. We initiate coverage with a BUY recommendation on Far East Hospitality Trust, a DDM-based target price of S$0.79, and a dividend yield of 5.9%.

Singapore Banking Monthly – Interest rates dip slightly

Recommendation: Overweight (Maintained)

Analyst: Glenn Thum

– December’s 3M-SORA was down 2bps MoM to 3.74% and was similar to the 4Q23 average. This is the first decline in 11 months. 3M-HIBOR was down 7bps MoM to 5.37%, but still the second highest level in 2023.

– Singapore domestic loans dipped 2.9% YoY in November, below our estimates. The loan decline was the smallest decline recorded in 10 months. The CASA balance dipped slightly to 18.5% (Oct23: 18.7%).

Maintain OVERWEIGHT. We remain positive on banks. NIMs may see flat growth despite the higher-for-longer interest rate environment, but a recovery in loan growth and fee income will uplift profits. Bank dividend yields are also attractive with upside surprises due to excess capital ratios and a push towards higher ROEs. SGX is another major beneficiary of higher interest rates (SGX SP, BUY, TP S$11.71).

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