Daily Morning Note – 9 November 2020


Investors and financial executives took a big sigh of relief on Saturday after major networks declared Democrat Joe Biden winner of the US presidential election, offering some certainty after days of conflicting reports about who might run the White House next term.

Although current President Donald Trump said he would fight the results in court, Wall Streeters who offered comments felt there was little doubt Mr Biden would ultimately succeed. Election predictors including the Associated Press, NBC, Fox News and Edison Research, upon which Reuters relies, called the presidency for Mr Biden.

Major US stock indexes registered their biggest weekly gains since April this week, as investors bet Mr Biden would win and Republicans would hold onto the Senate. That scenario would create a steadier hand in the Oval Office and a Congress that would check left-leaning impulses on taxes or regulations that pinch companies, investors said.


US stock market swings look set to continue as investors embrace President-elect Joe Biden’s victory, although many remain nervous about the balance of power in Washington and the ongoing spread of Covid-19.

Wilmar buys back 20 million shares, chairman increases stake.

Singapore Airlines’ (SIA) net loss in the second quarter to September doubled that of the earlier three months, as it reported a record net loss of S$3.47 billion for the first half of FY2021. The national carrier reported a loss of S$1.12 billion for the first quarter to June. With H1 loss coming in at S$3.47 billion, it means SIA bled S$2.34 billion in the second quarter – twice the loss in Q1.

Singapore authorities have nudged data center players to stop building new ones on this land-scarce island, triggering a rise in short-term rental rates. A moratorium on constructing new data centers was “implicitly imposed” since early last year during a closed-door session with government agencies and industry players, The Business Times understands.

The US Federal Reserve kept its loose monetary policy intact on Thursday and pledged again to do whatever it can in the coming months to sustain a US economic recovery that’s losing speed amid a spreading coronavirus pandemic and uncertainty over a still-undecided presidential election.

Warren Buffett’s Berkshire Hathaway reported lower quarterly operating results on Saturday and said the coronavirus pandemic may cause further damage, even as gains in stocks such as Apple fuelled a more than US$30 billion overall profit.

Italy’ss government approved an extra pandemic relief package for businesses hit by the country’s second lockdown. Prime Minister Giuseppe Conte’s cabinet signed off early on Saturday on the new measures, which extend support to more companies compared to an earlier 5 billion-euro (S$8 billion) aid decree. Italy is expected to add 2.5 billion euros in spending with the new program, according to officials familiar with the discussions.

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


Alibaba Group Holdings Ltd

Analyst: Chua Wei Ren

Recommended Action: Technical BUY

Alibaba Group Holdings (US: BABA) strong upside is marked by the completion of the one whole complete cycle of the intermediate phase, including the corrective running flat marked (A),(B),(C) and the technical indicate a further strong bullish upside.

>> Read more Technical reports


United Overseas Bank Limited – Asset quality clarity to mitigate earnings pressure

Recommendation: ACCUMULATE (Maintained); TP: S$21.10
Last Done: S$20.45; Analyst: Tay Wee Kuang

– 3Q20 earnings of S$668mn brought 9M profit to S$2.23bn, 74% of our FY20e estimate – in line. Results were in line with consensus as well.

– Net interest income fell 13% YoY to S$1.47bn as NIM was compressed by 24bps.

– Fee and commission income improved 16% QoQ as business recovered from CB, offsetting a 24% QoQ drop in trading income.

– Credit cost of 68bps brought GP reserves past S$3bn to provide a post-moratorium relief buffer.

Maintain ACCUMULATE with higher GGM TP of S$21.10 (previously S$20.40). We hold FY20e estimates but raise FY21e by 15% to factor in expected lower allowances.

Oversea-Chinese Banking Corp Ltd – Better credit outlook

Recommendation: ACCUMULATE (Maintained), TP: S$9.68 (previously S$8.92)

Last Done: S$8.93; Analyst: Tay Wee Kuang

– 3Q20 earnings dropped 12% YoY but improved 41% QoQ to S$1,028mn as allowances halved from previous quarter.

– Fees and commissions were down 9% YoY but recovered to normalised FY19 level of S$500mn per quarter.

– Allowances of S$350mn were only 8% higher YoY despite generally high credit costs. SP dived to S$148mn from S$271mn a year ago.

– Loans under moratorium shrank from 10% to 5% of loan book, reducing risks of NPA formation in FY21.

Maintain ACCUMULATE with higher GGM TP of S$9.68, from S$8.92 previously. We now peg our TP at 0.92x P/BV and FY21e ROE of 8.6% to reflect a better credit outlook. For sector exposure, still prefer UOB (SGX: U11, Accumulate, TP: S$21.10).

Manulife US REIT – Low expiries amid soft leasing

Recommendation: BUY (Maintained), Last Done: US$0.73

Target Price: US$0.92, Analyst: Natalie Ong

– No financials released in 3Q20 operational update. Slow quarter with no new leases signed. Portfolio occupancy dipped from 96.2% to 94.3% while portfolio subletting was unchanged at 3.3%.

– Gearing rose from 36.0% to 39.9% YoY due to a 2.9% decline in valuation in June 2020. Long WALE of 5.5 years maintained. Locked in +7.9% rental reversions YTD.

– Maintain BUY with higher DDM TP of US$0.92, raised from US$0.90 after incorporating lower cost of debt.

Frasers Centrepoint Trust – In the sweet spot despite headwinds

Recommendation: BUY (Upgraded), Last Done: S$2.26

Target Price: S$2.79, Analyst: Natalie Ong

– After accounting for the incremental rental waivers, FY20 DPU of 9.042 cents was broadly in line, at 93.0% of our estimate.

– High occupancy of 94.9% maintained. Rental reversions positive at 4.2%. As its portfolio of suburban malls are located near transportation nodes, they should be high on retailers’ priority list when they review their consolidation plans.

– Upgrade to BUY from ACCUMULATE with stock catalysts expected from growth in catchment surrounding FCT’s and synergies from enlarged scale post ARF acquisition. DDM TP (COE 6.75%) unchanged at S$2.79. We remain confident of the resilience of necessity-driven suburban malls.

UG Healthcare Corporation Ltd – One quarter already beat one year

Recommendation: BUY (Maintained), Last Done: S$0.965 Target Price: S$1.35,

Analyst: Paul Chew

– 1Q21 revenue and earnings beat our forecasts by more than 40%. Higher selling prices bumped up revenue and margins. Quarter’s PATMI of S$22.7mn already higher than FY20.

– Revenue surged 170% YoY to S$71mn: Europe +182% YoY, South America +237%.

– Gross margins were a record 70%, higher than our forecast 43%.

– We raise FY21e PATMI by 55% to S$84.3mn for higher ASPs, revenue and gross margins. TP is flat at S$1.35 vs S$1.33 previously, as we use more normalised earnings in FY22e as our basis. TP is now pegged at 14x PE, a 30% discount to larger glove peers vs 40% discount earlier. We believe this is warranted by an improved balance sheet, profitability, track record and expansion plans.

Prime US REIT – On course to exceed its NPI target

Recommendation: BUY (Maintained), Last Done: US$0.76

Target Price: US$0.94, Analyst: Tan Jie Hui

– Results in line with expectations; 99% rent-collection rate, few deferrals (<0.3% of GRI) and minimal lease expiries (2%/8.7% in FY20e/FY21e) underpinned Prime’s income resilience.

– Continued strength in leasing. Most tenants still signing c.5-year leases.

– Maintain BUY and DDM target price of US$0.94 (COE 9.5%).

DBS Group Holdings Ltd – Recovery underway as allowances tapered off

Recommendation: NEUTRAL (Maintained); TP: S$22.60 (previously S$21.00)

Last Done: S$22.49; Analyst: Tay Wee Kuang

– 3Q20 earnings of S$1,297mn brought 9M profit to S$3.7bn. At 79% of our FY21e estimate, results were in line with consensus as well, with allowances lower than expected.
– NII fell 12% YoY as NIM was down 37bps to 1.53%. Weakness could sustain into 4Q20.

– Fees and commissions were up 17% QoQ on recovery in wealth-management and credit-card fees.

Maintained 18-cent quarterly dividend. Scrip dividend will also be available for 3Q20.

Maintain NEUTRAL with higher GGM TP of S$22.60, from S$21.00. No change to earnings estimates but we peg our valuation at a higher 1.26x FY21e P/BV on lower allowances from a better credit outlook. For sector exposure, prefer UOB (SGX: U11, Accumulate, TP: S$21.10).

StarHub Ltd – Border closure still hurts

Recommendation: NEUTRAL (Maintained); TP S$1.24, Last close: S$¬¬1.20; Analyst Paul Chew

– 3Q20 EBITDA was within expectations, excluding government grants. YTD20 EBITDA was 76% of our FY20e forecast.

– Mobile revenue was down a hefty 29% YoY. This was due to a 25% fall in postpaid ARPU to S$29, a record low. Prepaid subscribers shrank 33% YoY.

– Border closure and loss of roaming revenue to continue to depress earnings. We do see some bright spots. ARPUs for broadband and Pay TV climbed QoQ as promotions ended.

– Maintain NEUTRAL and TP of S$1.24. TP is set at historical 6x EV/EBITDA excluding other income. We raise FY20e EBITDA by 5% to account for another S$15mn in grants in 2H20 and stronger PayTV and broadband businesses. A significant resumption of international travel is key to its earnings recovery. There are little signs yet.

Venture Corporation Ltd – Recovery slower than expected

Recommendation: NEUTRAL (Maintained); TP S$18.60, Last close: S$¬¬19.82; Analyst Paul Chew

– 3Q20 PATMI dropped 5.9% YoY to S$80.2mn – 14% below our forecast.

– We had expected 3Q20 to be stronger due to orders carried over from Q2 when facilities were partially shut because of lockdown.

– Maintain NEUTRAL. FY20e could be 3rd consecutive year of earnings decline since peaking in FY17. New projects are limited. We cut FY20e earnings by 12%. We roll over TP to 16x FY21e from FY20e, still based on its average PE in the past five years. Our TP climbs to S$18.60 from S$18.40. Net cash of S$829mn, yields of 4% and ROEs of 13% are expected to provide support.

SG Bonds Weekly – Week 46

Credit Analyst: Timothy Ang

– The Asia primary debt market sat on the sides with the US elections underway. For most parts of this week, only 2 Chinese issuers tapped the markets in Asia. The exception is Friday as 3 Chinese HY real estate developers announced new deals in the market this morning.

– New issue pipeline remains dry with 1 new mandate outstanding from the ones announced over the fortnight.

>> Read more research reports

HK Reports – Read up on our Hong Kong reports here


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Market Outlook: (PSR) US Election (Swing States & Sector Overview), REIT Updates, Sheng Siong & more

Date: 02 November 2020

For more on Market Outlook

Updates summarised in 3 minutes

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