DAILY MORNING NOTE | 9 September 2022

The Singapore market finished higher on Thursday (Sep 8), following solid gains overnight on Wall Street as investors shrugged off hawkish comments from Federal Reserve officials. However, regional bourses turned in a mixed showing. The Straits Times Index (STI) rose 0.7 per cent or 22.78 points to end at 3,233.61. Gainers outnumbered losers 278 to 197, with 1.33 billion securities worth S$1.04 billion changing hands. Some Asian markets also rebounded from Wednesday’s losses. South Korea’s Kospi climbed 0.3 per cent, while Japan’s Nikkei 225 jumped 2.3 per cent. In China, however, the Shanghai Composite Index fell 0.3 per cent, while the Shenzhen Composite Index on China’s second exchange lost 0.9 per cent. Hong Kong’s Hang Seng Index closed 1 per cent lower.

US SHARES ended with modest gains Thursday, recovering from early losses in the wake of the European Central Bank’s largest rate hike ever and more hawkish comments from the US Federal Reserve. Prior to the close, the New York Stock Exchange observed a minute of silence to honour the passing of Britain’s Queen Elizabeth II, the nation’s longest-serving monarch. After the double blow from the central banks working to combat surging inflation by front-loading aggressive steps, Wall Street equities bounced back from a midday slump, with gains accelerating late in the trading session.

Stocks to watch: Del Monte Pacific

US Stocks to watch: Tesla

SG

Canned food brand Del Monte Pacific on Thursday (Sep 8) posted a net loss of US$30.5 million for the first quarter ended Jul 31, compared to a net profit of US$18.3 million a year ago, after a one-off US$71.9 million expense for the redemption of notes. The company said US$26.3 million of the redemption cost was non-cash. Excluding the one-off cost, Del Monte would have generated a 7.2 per cent increase in net profit to US$19.6 million, after US subsidiary Del Monte Foods Inc’s (DMFI) 67 per cent rise in net profit on lower interest expense. The company posted a loss per share of 1.65 US cents, compared with an earnings per share of 0.69 US cent a year ago.

Lian Beng on Thursday (Sep 8) said its wholly owned subsidiary Lian Beng (Joo Chiat) has granted an option to sell a commercial property at 381 Joo Chiat Road to an unrelated third party. The option is exercisable by the purchaser within 14 days from the date of the option. The aggregate sale consideration is S$42 million. Lian Beng said the disposal is expected to have a positive impact on the net earnings per share and net tangible assets per share of the group for the current financial year ending May 31, 2023. The counter closed flat at S$0.53 on Thursday.

Oxley Holdings is proposing to distribute a dividend in specie of shares in Aspen (Group) Holdings held by Oxley, with shareholders receiving 23 Aspen shares for every 1,000 shares they hold. Aspen, listed on the Singapore Exchange’s mainboard, is based in Malaysia and engages in property development, glove manufacturing and the restaurant business. Its market capitalisation was S$53.1 million as at Sep 2. Oxley currently holds 101.3 million Aspen shares, representing about 9.4 per cent of the total number of issued shares.

KOP’s independent auditor has flagged a material uncertainty that may cast significant doubt on the real estate, hospitality and entertainment group’s ability to continue as a going concern. Separately, the group said it is proposing to sell 2 units of a condominium development at Dalvey Road for S$11.7 million to immediate family members of businessman Sam Goi, a controlling shareholder of the company. In a bourse filing released on Wednesday (Sep 7), KOP’s board said the group’s independent auditor, UHY Lee Seng Chan & Co, issued a qualified opinion on the group’s financial statements for the year ended Mar 31, 2022. It also included an “emphasis of matter” regarding a material uncertainty related to going concern in its report.

US

US banks reported US$64.4 billion in profits in the second quarter of 2022, as higher net interest income offset growing reserves to guard against loan losses, the Federal Deposit Insurance Corporation (FDIC) said Thursday (Sep 8). However, bank profits were down 8.5 per cent from a year ago, driven primarily by larger banks boosting their provision expenses for potential losses in the face of growing economic uncertainty. “The banking industry continues to face significant downside risks. These risks include the effects of high inflation, rapidly rising market interest rates, and continued geopolitical uncertainty,” said FDIC acting chairman Martin Gruenberg in a statement. “Taken together, these risks may reduce profitability, weaken credit quality and capital, and limit loan growth in coming quarters.”

Federal Reserve chair Jerome Powell said the US central bank will not flinch in its efforts to curb inflation “until the job is done”. “We need to act now, forthrightly, strongly as we have been doing,” Powell said on Thursday (Sep 8) in remarks at the Cato Institute’s monetary policy conference in Washington. “My colleagues and I are strongly committed to this project and will keep at it.” He spoke with a moderator in a virtual question-and-answer session. He said the Fed must continue to act “strongly” to cool demand and contain price pressures to avoid a repeat of the inflation surge the US economy suffered in the 1970s and 1980s. His predecessor from that era, Paul Volcker, had to take extreme measures as high inflation had become entrenched.

Mortgage rates in the US climbed for the third week in a row, reaching the highest level since 2008 and squeezing affordability as the US housing slowdown deepens. The average rate for a 30-year loan increased to 5.89 per cent, up from 5.66 per cent last week, Freddie Mac said in a statement on Thursday (Sep 8). Borrowing costs have been on a rollercoaster ride recently, with rates up almost a percentage point over the past month. Higher rates have side-lined potential buyers, affecting markets including New York. Weakening demand has now started to weigh on prices, with the average US home selling below its asking price for the first time in nearly 18 months, said real estate brokerage Redfin.

Applications for US unemployment insurance fell for a fourth straight week to the lowest since May, suggesting demand for workers remains healthy despite an uncertain economic outlook. Initial unemployment claims decreased by 6,000 to 222,000 in the week ended Sep 3, lower than all estimates, Labour Department data showed on Thursday (Sep 8). The median estimate in a Bloomberg survey of economists called for 235,000 new applications. The 4-week moving average, which smooths out volatile week-to-week moves, fell to 233,000 – the lowest since early July. Continuing claims for state benefits rose 36,000 to 1.47 million in the week ended Aug 27.

The European Central Bank on Thursday announced a 75 basis point interest rate rise, taking its benchmark deposit rate to 0.75%. “This major step frontloads the transition from the prevailing highly accommodative level of policy rates towards levels that will ensure the timely return of inflation to the ECB’s 2% medium-term target,” it said in a statement. The central bank added it “expects to raise interest rates further, because inflation remains far too high and is likely to stay above target for an extended period.” It revised up its inflation expectations, forecasting an average 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024.

Volkswagen on Monday announced its intention to float sports car brand Porsche, triggering what could become one of the world’s largest listings even as record inflation and a Russia-Europe energy standoff has sent European stocks tumbling. The carmaker published a so-called intention to float for an initial public offering in late September or early October to be completed by the end of the year, but added the listing and timing was “subject to further capital market developments.” Sources close to the negotiations told Reuters earlier on Monday that Volkswagen may extend the four-week period for buyers to express interest, or pull its plans altogether, should investors not show enough enthusiasm to make the move worthwhile.

Tesla’s China operations are back in full swing after a factory upgrade and Shanghai’s Covid-19 lockdown slowed production earlier this year. Elon Musk’s electric-car maker delivered 76,965 Chinese-made vehicles in August, just below June’s record of 77,938 and a sharp rebound from July’s 28,217, when assembly lines in Shanghai were suspended for upgrades to double the factory’s annual capacity to about 1 million units. Of the August total, 34,502 went to the local market and 42,463 were shipped overseas, China Passenger Car Association (PCA) data released on Thursday (Sep 8) showed.

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

RESEARCH REPORTS

Technical Pulse: DBS Group Holdings Ltd

Recommendation: Technical BUY

Analyst: Zane Aw

Buy limit: 32.99 Stop loss: 32.10 Take profit 1: 34.40 Take profit 2: 35.15

DBS Group Holdings Ltd (SGX: D05) Upside is set to continue with breakout of the consolidation triangle.

Bond Issuance Article:Fraser Property Limited 4.49% 5yr Senior Unsecure green bonds (SGD)

Analyst: Shawn Sng