DAILY MORNING NOTE | 8 May 2023

Week 19 equity strategy. Two significant events took place last week. First, as expected, the Federal Reserve implemented a 25 basis point hike. We believe the Fed is now prepared to pause, with the retraction of their additional firming language and considering that current rates have already met their projected target of 5.1%.

The second major news was the takeover of First Republic Bank (FRB) by JP Morgan. Despite the acquisition of assets and protection of deposits, the markets remained unsettled. This was because JP Morgan was not assuming or repaying FRB’s corporate debt, preferred stock and equity; so US$18bn was wiped out. Short sellers now determine which banks are to fail.

We think the regional bank malaise has not ended. Deposits continue to flow out of the banking system at a staggering rate of US$137 billion per week. Most of the funds have moved to money market funds (MMF). Over the past two months, US banking outflows have reached $500 billion, while MMF inflows have amounted to $440 billion. With such outflows, banks are compelled to raise cash. This means they stop lending or refinancing. A credit crunch in the banking system will weigh down the economy. If the Fed decides to raise rates it will further damage bank balance sheets through their Treasury holdings and fixed-rate mortgage loans. With a peak in interest rates, investors will be seeking yield in longer-duration assets. This will be positive for bonds and dividend-yielding equities such as REITs.

Paul Chew
Head Of Research
paulchewkl@phillip.com.sg


Singapore stocks closed 0.1 per cent lower on Friday (May 5), with UOL the biggest decliner after the counter slipped 0.8 per cent to close at S$7.10. The local banks were also among the losers, with OCBC and UOB falling 0.2 per cent. DBS shares slipped 0.7 per cent to close at S$31.90. The bank ended as the worst performer for the week, falling 2.8 per cent from last Friday’s close. Meanwhile, Sembcorp Industries was the top performer for the week. The counter fell 0.4 per cent on Friday to S$4.58, but its shares were still up 7 per cent from last Friday’s close.

Wall Street stocks rallied on Friday (May 5), snapping a four-day losing streak after strong US jobs data and a rebound in regional banking shares. The Dow Jones Industrial Average advanced 1.7 per cent to 33,674.38. The broad-based S&P 500 climbed 1.9 per cent to 4,136.25, while the tech-rich Nasdaq Composite Index jumped 2.3 per cent to 12,235.41.

Top gainers & losers

Factsheets



EVENTS THIS WEEK

Factsheets

SG

Singapore’s retail sales rose 4.5 per cent year on year in March, slowing from the previous month’s 12.6 per cent rise, data from the Department of Statistics Singapore (SingStat) showed on Friday (May 5). On a month-on-month seasonally adjusted basis, retail sales were up 2.2 per cent, easing from the 4.1 per cent growth in February. March’s retail sales growth was mainly supported by demand from the tourism and hospitality-related sectors as Singapore’s tourism arrival numbers continue to improve, noted private-sector economists.

The Monetary Authority of Singapore (MAS) has imposed an additional capital requirement on DBS Bank following the widespread unavailability of DBS Bank’s digital banking services on March 29 and a subsequent disruption to its digital banking and ATM services on May 5. Together with the additional capital requirement imposed on DBS in February 2022 (of $930 million), this translates to approximately $1.6 billion in total additional regulatory capital. The additional capital requirement on DBS Bank is now a multiplier of 1.8 times to its risk-weighted assets for operational risk, an increase from the multiplier of 1.5 times that MAS applied in February 2022 following the November 2021 disruption. MAS may subsequently vary the size of the multiplier depending on the outcome of ongoing reviews, the MAS statement says. The central bank’s supervisory action will have an incremental 0.3 percentage point impact on DBS’s CET1 ratio ended March 31, reducing it to 14.1% from 14.4%. MAS has also required DBS Bank to take immediate steps to improve the resiliency and recoverability of its existing system to minimise disruption of its services to its customers.

Offshore and marine engineering company Seatrium has secured a contract worth more than S$500 million to develop platforms for two offshore wind farms located off the coast of Long Island, United States. As part of the contract, Seatrium’s wholly-owned subsidiary Sembcorp Marine Offshore Platforms will be involved in activities which include the engineering and construction of two offshore substation platforms for the offshore wind farms. Both wind farms, known as Empire Wind 1 and 2, are a joint venture between Norwegian state-owned energy company Equinor and oil giant BP. Once the substation platforms are built, they will be operated by Equinor. The project will power more than one million homes in New York and is expected to be a major contributor in supporting the US’ energy transition goals for a low-carbon future, said Seatrium in a bourse filing on Friday (May 5).

Technology company Venture Corporation’s net profit for the first quarter of 2023 fell 12.4 per cent year on year to S$73.6 million amid softening demand for technology products. Revenue also declined to S$821.7 million for the quarter ended Mar 31, 2023, a 7.6 per cent drop from the same period a year ago, showed the company’s latest financial results posted on the Singapore Exchange on Friday (May 5). On a per-share basis, earnings fell 12.5 per cent to 25.2 Singapore cents. Venture Corporation said it is proactively pursuing multiple pathways to drive revenue and profitability, even as current market conditions affecting demand are beyond its control.

Far East Orchard’s net profit surged by 67.9% y-o-y to $4.7 million in 1QFY2023 for the three months to March 31, on the back of a 55.2% rise in revenue to $46.1 million. The hospitality business continued to recover strongly with the recovery in business travel recovery and leisure travel demand, the company said in a statement. In 1QFY2023, the group opened four hotels with more than 500 rooms. This includes the debut of Adina Apartment Hotel Geneva, and a third hotel in Japan, a 134-key Far East Village Hotel Tokyo, Asakusa. With the opening of Adina Geneva, the European portfolio which is operative via a joint-venture, owns and/ or operates 18 hotels with over 2,700 keys. Two new hotels in Australia and Malaysia are expected to be opened in the second half of the year.


US

The U.S. Bureau of Labor Statistics reported that total nonfarm payroll employment rose by greater-than-expected 253,000 jobs in April, with employment continuing to trend up in professional and business services, health care, leisure and hospitality, and social assistance. The unemployment rate fell to 3.4 percent in April. In terms of average hourly earnings, private nonfarm payrolls saw a rise of 16 cents or 0.5 percent to $33.36 in April. Over the past 12 months, average hourly earnings increased by 4.4 percent. Average hourly earnings of private-sector production and nonsupervisory employees also rose by 11 cents or 0.4 percent to $28.62 in April.

Berkshire Hathaway posted a $35.5 billion profit in the first quarter, boosted by its insurance business and Apple (AAPL) stock gains. Operating earnings at the conglomerate were $8.1 billion, 12.6% higher on the year. Berkshire dumped billions in stock in the first quarter and added $2 billion to its cash pile, signaling that the company is currently preferring cash holdings over stock investments.

Taiwan’s Foxconn, the world’s largest contract electronics maker and major iPhone assembler, said on Friday (May 5) revenue in April fell 11.77 per cent year-on-year due to weakness in smart consumer electronics, and expected business to drop this quarter. Foxconn said revenue last month reached US$14 billion, in line with the company’s own expectations. For smart consumer electronics products, which include smartphones and are the company’s main business driver, revenue in April declined as it entered the “traditional slow season”, the company said in a statement, without elaborating. Business in the second quarter is expected to decline due to a high base last year and “the seasonal off-peak period” amid a transition between old and new products, it said.

Warner Bros Discovery reported a surprise profit in streaming TV as its legacy cable networks continued to lose advertising and viewers. The company, which will relaunch its streaming service as Max on May 23, earned US$50 million in the first quarter from its online TV business, according to a statement on Friday (May 5). Analysts were forecasting a US$49 million loss on average. The company’s global direct-to-consumer subscribers increased 1.6 million to 97.6 million.

Meta Platforms has hired an Oslo-based team that until late last year was building artificial-intelligence (AI) networking technology at British chip unicorn Graphcore. The move brings additional muscle to the social media giant’s bid to improve how its data centres handle AI work, as it races to cope with demand for AI-oriented infrastructure from teams across the company looking to build new features. Meta, which owns Facebook and Instagram, has become increasingly reliant on AI technology to target advertising, select posts for its apps’ feeds and purge banned content from its platforms. On top of that, it is now rushing to join competitors like Microsoft and Alphabet’s Google in releasing generative AI products capable of creating human-like writing, art and other content, which investors see as the next big growth area for tech companies.

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


RESEARCH REPORTS

Sheng Siong Group Ltd – Lagged impact from inflation

Recommendation: ACCUMULATE (Downgraded; TP S$1.98, Last close: S$1.75; Analyst Paul Chew

– 1Q23 results were within expectations. Revenue and PATMI were 26%/25% of our FY23e forecast. PATMI declined 5.3% due to higher operating expenses namely electricity and staff cost.

– Sales were generally stable, despite a 3.6% fall in same-store sales growth. New stores contributed to 3.6% points of revenue growth.

– Revenue growth is still normalising post-re-opening. The weakness in same-store sales has improved from a decline of 3.6% in 1Q23 to 1H22 negative 7.0%. Higher electricity expenses of an annualised S$10mn will be a significant drag on operating margins in FY23e. The offset will be higher interest income. We maintain our FY23e earnings. But downgrade our recommendation from BUY to ACCUMULATE due to the recent performance of the share prices. The target price is maintained at S$1.98. Valuation is pegged to 22x PE, a 10-15% discount to the 5-year historical average of 25x PE. New stores remain the source of growth as tendering activity picks up pace.

Venture Corporation Ltd – Weakness to persist

Recommendation: NEUTRAL (Downgraded); TP S$17.10, Last close: S$17.06; Analyst Paul Chew

– 1Q23 results were below expectations. Revenue and PAT were 20%/20% of our FY23e forecast. PAT was the lowest in almost three years.

– Guidance by the company is that demand weakness is expected in the near term. Customers have turned more cautious in their orders.

– We cut our FY23e PATMI by 13% to S$311mn as we lowered revenue by 12%. Our recommendation is downgraded from ACCUMULATE to NEUTRAL. Our target price is lowered to S$17.10 (prev. S$19.70), 16x PE FY23e. There remains little visibility of a recovery. Demand continues to be weak. New product introduction that is expected to ramp up in coming quarters and migration of products away from supply chains in China will stem some of the weakness in demand.

Apple Inc. – Expecting revenue contraction

Recommendation : ACCUMULATE (Downgraded); TP: US$183.00, Last Close: US$173.57
Analyst: Maximilian Koeswoyo

– 2Q23 results were within our expectations. 1H23 revenue/PATMI at 53%/54% of our FY23e forecasts.

– Revenue contraction was lower than company guidance due to better-than-expected iPhone sales. Gross margin expanded by 130 basis points QoQ.

– 3Q23 guidance is for revenue YoY decline of around 2%-3% with gross margin remaining stable QoQ. Weakness due to product revenue facing challenges from the macro conditions.

– We cut our FY23e revenue by 5% and PATMI by 4% to account for expected continued revenue contraction in 3Q23. We downgrade from BUY to ACCUMULATE rating with a lowered target price of US$183.00 (prev. US$186.00), with a WACC of 6.5%, and a terminal growth rate of 3%. We forecast FY23e revenue to contract relative to FY22 as sales are expected to continue declining in 2H23e, with positive growth returning in FY24e.

PSR Stocks Coverage

Factsheets


Factsheets


For more information, please visit:

https://www.stocksbnb.com/singapore-stocks-coverage/


Upcoming Webinars

Guest Presentation by OUE Commercial REIT [NEW]

Date: 10 May 2023

Time: 12pm – 1pm

Register: https://bit.ly/3GzrdF3


Guest Presentation by ITT [NEW]

Date: 11 May 2023

Time: 8:30pm – 9:30pm

Register: https://bit.ly/3V0utPH


Guest Presentation by Rex International Holding Limited [NEW]

Date: 17 May 2023

Time: 12pm – 1pm

Register: https://bit.ly/423Vy7p


POEMS Podcast:

Research Videos

Weekly Market Outlook: Netflix, Keppel Corp, Keppel DC Reit, Silverlake Axis, Tech Analysis & More!
Date: 24 April 2023
Click here for more on Market Outlook.
Sign up for our webinars here, and be among the first to receive economy and market updates.

PHILLIP RESEARCH IN 3 MINS

Phillip Research in 3 minutes: #29 Keppel Corporation; Initiation
Click here for more on Phillip in 3 mins.

Follow our Socials

Facebook Social Icon Instagram Icon Twitter Social Icon Youtube Social Icon Linkedin Social Icon TikTok Social Icon Spotify Social Icon

Join our Singapore Equity Research Community on POEMS Mobile 3 App for the latest research reports, market updates, insights and more

Click to join!

Disclaimer

The information contained in this email and/or its attachment(s) is provided to you for information only and is not intended to or nor will it create/induce the creation of any binding legal relations. The information or opinions provided in this email do not constitute an investment advice, an offer or solicitation to subscribe for, purchase or sell the e investment product(s) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of this information. Investments are subject to investment risks including possible loss of the principal amount invested. The value of the product and the income from them may fall as well as rise. You may wish to seek advice from an independent financial adviser before making a commitment to purchase or investing in the investment product(s) mentioned herein. In the event that you choose not to do so, you should consider whether the investment product(s) mentioned herein is suitable for you. PhillipCapital and any of its members will not, in any event, be liable to you for any direct/indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials attached to this email. The information and/or materials provided 揳s is?without warranty of any kind, either express or implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials.

Confidentiality Note

This e-mail and its attachment(s) may contain privileged or confidential information, which is intended only for the use of the recipient(s) named above. If you have received this message in error, please notify the sender immediately and delete all copies of it. If you are not the intended recipient, you must not read, use, copy, store, disseminate and/or disclose to any person this email and any of its attachment(s). PhillipCapital and its members will not accept legal responsibility for the contents of this message. Thank you for your cooperation.

Contact us to Open an Account

Need Assistance? Share your Details and we’ll get back to you

IMPORTANT INFORMATION

This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

This advertisement has not been reviewed by the Monetary Authority of Singapore.  

 

Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com