Daily Morning Note – 8 November 2021


Stocks look set to start the week steady as investors keep watch on how price pressures impact the pace of economic recovery. Futures edged up in Japan and Australia, and fell in Hong Kong. All major U.S. equity benchmarks climbed to records Friday, with the S&P 500 posting its fifth consecutive weekly rally. That was after a larger-than-forecast and broad-based gain in U.S. payrolls indicated greater progress filling millions of vacancies as the effects of the delta variant faded. Bonds rallied, with the U.S. 10-year Treasury yield sinking below 1.5%.



Beverage and publishing company Fraser and Neave (F&N) saw net profit decline 21.4 per cent to S$61.8 million for the 6 months ended Sep 30, despite a 3.1 per cent rise in revenue, it said in a results release on Friday (Nov 5). Revenue for the second half was S$890.6 million, up from S$864.1 million in the year-ago period. But profit was hurt by unfavourable foreign currency translation, higher input and freight costs, and a lower share of profit from associated company Vietnam Dairy Products Joint Stock Company.

Isoteam has agreed to divest its entire 1.18 per cent equity interest in clean energy solutions provider Sunseap Group for about S$12.2 million at S$270 per sale share, announced the construction group on Friday (Nov 5).

DBS is looking to open its members-only crypto exchange to the broader retail market over the next year, the bank’s chief executive Piyush Gupta said at its third-quarter results briefing on Friday (Nov 5). This is still subject to regulatory approvals, the bank later told The Business Times. The DBS Digital Exchange has seen “very encouraging” performance in the past few months since it started operating round-the-clock in August, and now holds some S$600 million of assets under custody.

An IReit Global IREIT tenant intends to vacate a property that accounts for about 11 per cent of the real estate investment trust’s (Reit) total gross rental income, the Reit’s manager announced on Friday (Nov 5) night in a Singapore Exchange filing. This will be when the lease expires on Nov 29, 2022. As such, the Reit’s manager does not expect any material impact on the Reit’s distribution per unit for the financial years ending 2021 and 2022.

SIA Engineering Company (SIAEC) posted a group net profit of S$10.5 million for the second quarter ended Sep 30, up S$40.2 million from the loss in the year-ago period, it announced in a results release on Nov 5 after market close.

Temasek’s mandatory general offer for Sembcorp Marine (Sembmarine) closed with 8 per cent acceptances on Wednesday (Nov 3). This – taken together with the shares owned, controlled, or agreed to be acquired by Temasek and its concert parties – amounts to an aggregate of about 17.1 billion shares, representing about 54.6 per cent of the total number of issued shares, according to a bourse filing late on Wednesday (Nov 3).


US Federal Reserve chair Jerome Powell is doubling down on the central bank’s new policy framework – saying he will not entertain interest-rate increases until the labour market heals further, even though inflation could run hot for months. “There is still ground to cover to reach maximum employment,” he told reporters on Wednesday (Nov 3). “The inflation that we’re seeing is really not due to a tight labour market.”

Warren Buffett’s Berkshire Hathaway said last Saturday that global supply chain disruptions kept a lid on its ability to generate profit, while rising equity prices caused it to sell some stocks and boost its cash hoard to a record. Operating profit rose 18 per cent but missed analyst forecasts, as a resurgence in Covid-19 cases fuelled by the Delta variant of the coronavirus caused goods shortages.

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

CapitaLand Investment Limited – Capital recycling and recovery

Recommendation: ACCUMULATE (Maintained), Last Done: S$3.43

Target Price: S$4.00, Analyst: Natalie Ong

– 9M21 revenue of S$1.6bn was in line, forming 74.3% of FY21e estimates.

– Active capital recycling, driving 9M21 fund management fee-related earnings (+34%) and funds under management (+9%).

– Lodging and retail recovering steadily, office and new economy resilient.

– Maintain ACCUMULATE and SOTP derived TP of S$4.00, representing an 18.9% upside from current market price. CLI is trading at 16.7x P/E; we are forecasting FY21e dividend yield of 2.4%.

Oversea-Chinese Banking Corp Ltd – Outlook stable along with lower allowances

Recommendation: Buy (Maintained)

Analyst: Glenn Thum

– 3Q21 earnings PATMI of S$1.22bn in line with our estimate. 9M21 PATMI is 80% of our FY21e forecast on lower-than-expected allowances.

– NIM fell 6bps QoQ, though NII remained flat in the same period and grew 3% YoY.

– Provisions were 53% YoY lower to S$163mn due to lower SPs and GP write-back. Asset quality suffered due to an increase in loans under relief in Malaysia.

– Maintain BUY with an unchanged target price of S$14.22. We raise FY21e earnings by 1.8% as we increase profits of associates. Our TP remains unchanged at 1.24x P/BV and 9.3% FY21e ROE. Catalyst includes lower provisions and higher interest income as economic conditions improve.

DBS Group Holdings Ltd – Higher fees and allowances write-backs

Recommendation: Accumulate (Maintained)

Analyst: Glenn Thum

– 3Q21 earnings of S$1.7bn exceeded forecast due to reversal in general allowances. 9M21 PATMI is 83% of our FY21e forecast. 3Q21 DPS jumped 83% to 33 cents.

– Asset quality stable, resulting in further GP write-backs of S$138mn. Management lowered full-year allowances to under S$100mn (9M21 allowance at S$19mn).

– Maintain ACCUMULATE with a higher GGM TP of S$35.90, from S$32.00. We raise FY21e earnings by 3.9% as we lower allowances estimates for FY21e. We now assume 1.56x FY21e P/BV in our GGM valuation, up from 1.39x, as we raise our ROE estimates to 11.6%. DBS pays a 4.5% FY21e with earnings upside from higher interest rates.

Prime US REIT – Strong reversions from under rented portfolio

Recommendation: ACCUMULATE (Maintained), Last Done: US$0.875

Target Price: US$0.94, Analyst: Natalie Ong

– 9M21 NPI and distributable income met expectations, at 72% of our FY21e estimates.

– Strong leasing quarter with 4.3% of NLA signed at 19.2% reversions. Two pre-terminations announced, but pre-termination fees likely to cover rents till 4Q22.

– Maintain ACCUMULATE and DDM target price of US$0.94 (COE 9.5%). No change in our estimates. Current share price implies FY21e/FY22e DPU yield of 7.6%/8.8%. Prime is our top pick in the US Office sector for greater tenant exposure to STEM/TAMI sectors. Catalysts include improved leasing and a greater return to office.

NetLink NBN Trust – Some growth returning

Recommendation: ACCUMULATE (Maintained); TP S$1.03, Last close: S$¬¬1.01; Analyst Paul Chew

– 1H22 revenue and EBITDA were within expectations, at 50%/48% of our FY22e forecasts. DPU was raised a modest 1.2% YoY to 2.56 cents.

– 1H22 residential fibre connections rose only 3.9k. The run rate is below our 25k net connections expected in FY22e. Delays in the construction of new homes is the bottleneck.

– FY22e revenue estimate is nudged up for higher installation and diversion revenue. EBITDA is reduced by 5% to account for the one-off non-cash finance lease receivable remeasurement of S$12.4mn. Our DCF TP of S$1.03 (WACC 5.9%) and ACCUMULATE recommendation is unchanged. The dividend yield of 5.1% is expected to be stable, backed by monthly recurring revenue from more than 2mn fibre connections in homes and businesses.

Technical analysis: Gold Mid-term outlook remains range bound

– The Federal Reserve has confirmed the start of the tapering process this month. The amount of asset purchases will be reduced by US$15bn and aims to finish the process by mid-2022.

– Interest rates is still capped at near zero at 0.25%. The nearest rate hike is speculated to be brought forward to early 2023. As such, Gold will face further correction from the high of US1,860-US$1,884 region and a major rebound will happen at the lower boundary of US$1,600.

– US dollar is likely to find strength in the tapering process. Short-term target at 96.44.

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