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Phillip Securities Research Morning Call8th June 2020
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Lending rates under pressure
3M-SIBOR/SOR continue falling to 0.56% and 0.20% respectively; 70 – 80 bps below YTD averages
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Lending rates under pressure
3M-SIBOR/SOR continue falling to 0.56% and 0.20% respectively; 70 – 80 bps below YTD averages
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Banks move to cut deposit rates on high-interest deposit accounts
Move comes to control funding costs as pressures on NIMs continue to mount
OCBC:
From average of 1.8% to 0.9% on S$70,000
Removal of credit card spending bonus interest
DBS:
Balance eligible for higher interest on Multiplier account capped at S$25,000 (down from S$50,000)
Interest capped at 2%; down from 2.08%
UOB:
Interest rate slashed from between 1.50% - 2.44% to average of between 0.50% - 1.80%
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Singapore Banking Monthly – Neutral (Maintained)
SDAV benefited from MSCI rebalancing at the end of May
Breakdown in institutional/retail split this month may show underlying market dynamics
Derivatives volume may dip, but investors may be unwinding positions from SGX with cessation of MSCI license
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Results at a glance
(SGD mn) 3Q20 3Q19 YoY
Fixed Income,
Currencies & Commodities
(FICC)
45.5 37.0 23%
Equities - Cash & Derivatives 217.3 165.7 31%
- Cash 111.3 80.4 38%
- Derivatives 106.0 85.3 24%
Data, Connectivity & Indices
(DCI)33.0 26.1 26%
Total Revenue 295.8 228.8 29%
OPEX 109.6 94.6 16%
EBITDA 186.2 134.2 39%
Dep & Amort 23.4 16.0 46%
Operating profit 162.9 118.2 38%
Other gains/(losses) 5.3 3.0 73%
Associates & JVs (2.4) (0.6) n.m.
Profit before tax 165.7 120.6 37%
Tax (28.2) (21.0) 34%
Net profit 137.5 99.7 38%
Source: Company, PSR
25 out 36 products will cease by February 2021
Impact on Equities – Derivatives business
36% of SGX’s total revenue in 3Q20
Trading and clearing revenue (3Q20: $65.0mn)
Lower trading volumes
1.7mn contracts traded in April
14% of total contracts traded
Treasury, license and other revenue (3Q20: $41.0mn)
Lower open positions
670,197 open positions as of end April
37% of total open positions
Assessing impact of cessation of MSCI license agreement
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SGX management
Impact 12% on DDAV
Conservatively expects 10 – 15% impact to FY21 earnings
Off high base in FY20
Assuming day 1 cessation of product in FY21 (i.e. 1 July 2020)
Pivot towards a multi-asset strategy 4 years ago
Popularity of other asset classes
FX futures
Single-stock futures
ETFs
Outlook with cessation
Personal expectations
Clients unwinding positions
Trading and clearing may not be affected that much in near future
What will be the pace of unwinding?
Will there be a ripple effect?
Push new product launches
Recent acquisition of Scientific Beta will be a wild-card
Uptake of new products may be slow as seen in products such as DLCs
Long-term prospects remain intact
Competition with HKEX as capital-raising destination will remain stiff
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Maintain Singapore banking sector at Neutral
Recent run-up in prices of banking stocks led to downgrade of individual stocks
No change in underlying estimates
Market may have underestimated underlying risks from increase in credit costs
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Dasin Retail TrustRecovery underway
Natalie Ong
Research Analyst
Phillip Securities Research Pte Ltd
8th June 2020
Phillip Securities Research has received monetary compensation for the production of the report from the entity mentioned in the report
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+ The Positives
Healthy portfolio metrics, protected by lease structure. Occupancy of 96.8% and long WALE by GRI of 4.5 years. Only 4% of leases by GRI are on pure turnover terms, 20% of leases are structured as higher of base rent or turnover rent, 12% of leases are fixed while 64% of leases are fixed with built-in escalation ranging 3% to 10% per annum
Creating opportunity through crisis. 42 live broadcasts were hosted by influencers and tenants via the live streaming on the “Dasin Hui” app, which has a membership base of 420,000. These broadcasts were conducted from 2 March to 28 April 2020 to drive tenant sales.
Despite resuming normal operating hours by March, March and April
turnover rent was still 37% and 32% below 4Q19 levels. Turnover rent, as a proxy for tenant sales, fell by 64% in February when the operating hours were shortened
Portfolio occupancy fell by 2.0ppts QoQ to 96.8% due to lower occupancy across all malls. Ooccupancy was lower due to non-renewals, as well as space that was vacant due to ongoing AEIs.
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Outlook
Estimated completion of acquisition delayed
from 1Q20 to 3Q20. COVID-19-induced volatility in the global markets has resulted in delays in the private placement
Financing of the acquisition has been adjusted in light of the depreciation of share price and weakening of the Singapore dollar against Renminbi.
Maintain ACCUMULATE with higher TP of S$0.91 (prev. $0.88).
FY20e DPU was slashed by 16.9% as we push back the acquisition of Shunde and Tanbei Metro Malls from 1Q20 to 3Q20 and factor in the S$7.9mn in rental rebates for FY20.
We also factored in higher vacancy rates for FY20e and FY21e, as well as lower rental reversions. Our DPU translates to a yield of 6.3% for FY20e and 6.8% FY21e.
Terminal growth rate raised from 0.5% to 1.5% to better reflect the pace of acquisitions
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SGD Perpetual Bonds: Non-call risk yes, value also yes
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What is non-call risk?
No Maturity Date
Only Call Date – no obligations
Non-call risk
• Coupon rate will reset based on current interest rate environment – economical for issuers
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But choose wisely…
Structure(Call / Reset / Step-up) Call date Step-up margin (bps) Yield to worst (%) Yield to call (%)
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Straits Time Index – The bull returns?
Source: Bloomberg, PSR
- The bullish return on last Friday signal a last attempt in testing the resistance zone.
- Likelihood of testing the 61.8% Fibonacci retracement at 2,842 is the key.
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Penguin – Rebound happen as expected
Source: Bloomberg, PSR
- Penguin broke out of the bullish pennant on 2nd June 2020
- Tested the resistance level at $0.545 and form an evening star on the 4th of June
- 5th June sees the stock rebounded from the immediate support at $0.505
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Keppel DC REIT – $2.53 remain key level to watch
Source: Bloomberg, PSR
- Friday’s candle display a bearish candle after two days of indecision.
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Thai Beverage– $Resistance zone at $0.72-$0.74 is key.
Source: Bloomberg, PSR
- Friday’s candle shows the return of the bullish return but the stock’s price remain in the resistance
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Outlook: The outlook is challenging due to Covid-19 andcollapse in oil prices.
Charter rate for crew boats will be under pressure, demandfor new vessels is down and ferry customers will suffer fromthe pandemic.
Downgrade to ACCUMULATE with a lower target price ofS$0.55 (prev. S$0.88) : With such an uncertain earningsoutlook, we will use price to book as a gauge to valuations.The 10-year price to book average is 0.7x, with a range of 0.5xto 1x. The net cash of S$60mn (end-Dec19) will allow thecompany to ride through this turbulence.
The biggest worry will be trade receivables and inventory ofvessels built to stock. During such a stressed environment, therisk will be elevated from customers defaulting payments andinventory becoming unsold. In 2016 downturn, Penguin swunginto losses and revenues plunged by 72% (Figure 2). Thedifference in this cycle is the larger net cash on the balancesheet (from S$24mn end 2015 to S$60mn end 2019) and amore diverse portfolio of vessels built.
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• Bharti was the bright light. In 4Q20, Bharti reported an operatingprofit of S$86mn (4Q19: -S$12mn). The associates contribution fromBharti is still negative due to heavy finance cost(S$173mn) and FVloss (S$27mn).
• ICT revenue grew 7% in Singapore. NCS revenue grew due to higherdata centres contracts and maintenance projects. NCS order-bookwas up approx. 7% YoY to S$3.2bn in Mar20 (Mar19: S$3bn).
Negatives
• Mobile blended ARPU suffered a large drop of 19% YoY (13% QoQ) torecord low S$26. A combination of lower roaming and higher SIMplans contributed to the weakness. EBIT managed to grow due toundisclosed wage credit in March (est. S$20mn).
• Optus net profit plunged 83% YoY in A$39mn. EBIT margins tumbledfrom 16% to 5%. The switch from their internal fixed broadbandnetwork to wholesale NBN network has hurt margins significantly forboth consumer and enterprise access business. There is still another135k Optus customers to be migrated to NBN.
Outlook: No guidance provided for FY21e. Singapore will face roaming traffic weakness. Our largest concern is Australia where the transition to NBNcontinues to hurt margins especially from the fixed broadband business. Associates will be soft from competitive pressure and lower usages/top-ups forthe prepaid segment. But Bharti will be the bright spot.
Downgrade to NEUTRAL from ACCUMULATE with lower TP: We cut our FY21e earnings by 16%. Our valuation model incorporates a 20% discount to themarket valuation of the associates.
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Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. Phillip Securities accepts no liability whatsoever with respect to the use of this document or its contents.
Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. Phillip Securities accepts no liability whatsoever with respect to the use of this document or its contents.
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COVID-19: Largest economies trending down
Source: CEIC, WHO, PSR; *Largest economies - US, China, Germany, UK, Spain, Italy, France, Japan, S Korea
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QE on steroids = Helicopter money
Source: CEIC, PSR
-2,000.0
-1,600.0
-1,200.0
-800.0
-400.0
0.0
400.0
1990 1995 2000 2005 2010 2015 2020
US: Budget Position (US$bn - Rolling 12 month)
-1000
0
1000
2000
3000
4000
2008 2010 2012 2014 2016 2018 2020
More potent than QE
Change in Fed Holdings of Treasuries (12M Rolling)
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PHILLIP ABSOLUTE 10REITs taking the lead
Note# As at end May 2020, performance is for illustration purposes only. It excludes the cost of monthly
rebalancing, transaction fees and dividend income.
Source: PSR, Bloomberg
Company 1M 3M YTD Rating Target Px (S$) Share Px (S$) Upside Mkt Cap (US$m) Dvd. Yield
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Snapshot of sectors – MY rubber gloves / TH liquor
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The information provided in this seminar is solely for educational purposes and should not be considered as financial advice. The views, statements and opinions expressed in this seminar
are solely the views, statements and opinions of the presenter made in his/her personal capacity and do not represent the views, statements or opinions of nor are they made on behalf of
Phillip Securities Pte Ltd (PSPL).
The information contained in this presentation has been obtained from public sources which PSPL has no reason to believe are unreliable and any analysis, forecasts, projections,
expectations and opinions (collectively the “Research”) contained in this presentation are based on such information and are expressions of belief only. PSPL has not verified this
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This presentation is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person.
You should seek advice from a financial adviser regarding the suitability of the investment products mentioned, taking into account your specific investment objectives, financial situation or
particular needs, before making a commitment to invest in such products.
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