A modest gain even as Wall St powers to new all-time highs

Date: February 5, 2024

  • As expected, the US Fed held rates steady but also signalled no March cut
  • Wall St finished the week at new all-time highs despite sharp rise in 10-year Treasury yield to 4.03%
  • The STI managed a 0.6% gain at 3,179.77 in improved volume
  • Keppel’s 2H profit rose 2.5% to S$439.9m, full-year profit up four times
  • Seatrium expects much higher loss for 2023
  • Sabana REIT’s trustee rejected suggestions of wrongdoing


Wall St finished week at all-time highs despite Powell’s comments

The widely-anticipated first US Federal Open Markets Committee meeting for 2024 was held last week and although the Fed lived up to expectations by keeping interest rates steady, the accompanying language was not what markets were hoping for.

Despite this – and a mid-week blip – the Dow Jones Industrial Average and S&P 500 ended the week at all-time highs, even as the 10-year Treasury yield made its largest single-day jump since Sep 2022 after release of an unexpectedly strong non-farm payrolls report.

The STI, which appears to have decoupled from the US, added 0.6%

Here, the Straits Times Index has been largely unaffected by Wall Street’s recent strength, though last week it managed a modest 20-points or 0.6% rise for the week to 3,179.77, in improved average daily volume of S$1.14b.

Rates were held steady but Powell said don’t expect a cut in March

Federal Reserve kept rates steady, as expected, but Chair Jerome Powell said March rate cuts weren’t likely.

“I will tell you that I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting to identify March is the time to do [rate cuts],” said Fed chair Jerome Powell on Wednesday. He added that a March cut is “not the most likely” or “base case” scenario.

“The Fed implied they are not ready to start easing,” wrote Wells Fargo’s equity strategist Christopher Harvey.

The 10-year Treasury yield surged after strong US jobs report

The yield on the 10-year Treasury note made significant gains on Friday, rising 16.8 basis points to at 4.030%. Released Friday morning, the unexpectedly strong non-farm payroll report pushed yields higher, after they settled before the 4% level for two consecutive days.

The report showed the U.S. added 353,000 non-farm jobs in January, higher than the economists’ forecast of 176,500, according to FactSet. A strong jobs market suggests that consumers may have a higher ability to spend. That in turn could keep inflation stickier–which also means less need for a rate cut in the near term. Higher rates for longer periods of time keep bond yields higher, too.

In the futures market the probability of a rate cut at the 20 March meeting fell from 65 to 20.5%.

Keppel’s 2H profit rose 2.5% to S$439.9m, full-year profit up four times

Keppel posted a 2.5% rise in net profit to S$439.9 million for the second half ended December, bringing full-year earnings to S$4.1 billion – a more than four times increase from a year earlier.

The full-year earnings – a record in the conglomerate-turned-global asset manager and operator’s 55-year history – was in big part led by gains from the major sale of Keppel Offshore & Marine to Seatrium.

Net profit from continuing operations was up nearly 9% to S$440 million for the second half. For the full year, that figure rose nearly 6% to S$885 million. This included the accounting loss of S$111 million from the distribution of Keppel Reit units (distribution loss or DIS loss) to shareholders last November.

The asset manager has proposed a final dividend of S$0.19 per share for FY2023, up from the S$0.18 per share dividend declared in FY2022. This brings the total cash dividend for FY2023 to S$0.34 per share, which includes a S$0.15 interim dividend paid in August 2023.

The total cash dividend translates to a yield of 4.7%, based on Keppel’s Jan 31 closing price of S$7.16. The group plans to pay the dividend on May 8, after the books closure date on Apr 26

Keppel’s shares surged S$0.29 or 4.2% on Tuesday to S$7.14 in high volume of 10.4m, two days before the results were announced on Thursday. On Friday, they rose S$0.14 to S$7.29 on turnover of 10.5m.

Seatrium expects much higher loss for 2023

Seatrium said it expects a financial loss for FY2023 that is “significantly higher than the previous year’’.

The group noted that it is expected to make a material non-cash write-down related to the “surplus non-core assets and obsolete inventories” for the financial year, which were identified by the management’s strategic review.

It added that it is in the process of finalising the unaudited financials to be released on Feb 26, and advised shareholders and investors to deal with its shares with caution.

DBS Group Research noted that since the write-down is non-cash, Seatrium’s cash flow should remain intact, in addition to a healthy level of gearing. “We believe the conclusion of this would remove the overhang of kitchen-sinking, paving way for steadier recovery ahead.”

The research house added that Seatrium’s potential contract wins from Petrobras could also be a near term catalyst. Given its recent price weakness due to negative news flow on offshore wind, a lack of contract wins and concerns over its full-year financials, further weakening of its price post the profit guidance leads to a buying opportunity, said DBS. It keeps a “buy” call with a S$0.18 target price.

For the week, Seatrium’s shares fell S$0.004 or 3.8% to S$0.10.

Sabana REIT’s trustee rejected suggestions of wrongdoing

The trustee of Sabana Industrial Real Estate Investment Trust (Sabana REIT) said that it rejects activist investors’ suggestions that it has committed wrongdoing or caused any delay in the REIT’s internalisation.

The trustee, HSBC Institutional Trust Services, said it has been focused on executing the unitholders’ mandate by ensuring that its implementation is “orderly, well-considered and advised, in the best interest of all unitholders”.

The trustee was responding to a letter it received from the requisitioning unitholders on Jan 29. The unitholders, who call themselves the Sabana Growth Internalisation Committee (SGIC), are led by activist investor Quarz Capital.

The REIT’s unitholders in August last year voted in favour of resolutions tabled by Quarz to remove Sabana REIT’s manager, and to direct the trustee to internalise the management function.

In December, SGIC sought to convene another EGM to pass 12 more resolutions to direct the trustee on the internalisation of the manager. But Sabana REIT’s manager said it would not convene the EGM as the requisition notice does not comply with the requirements of the trust deed.

In its letter to the trustee, SGIC said, among other things, that it should be allowed to hold the requisition EGM as part of the internal democratic process of the REIT.

Responding to this, the trustee said in its statement last week that it would not be beneficial to the progress of the internalisation for the resolutions, as currently worded, to be tabled to unhitholders at this juncture.

“The trustee is concerned that more confusion, costs, delay and distraction will arise from the requisitioned resolutions than actual clarity and progress,” it said.

Selected earnings in brief

CapitaLand China Trust posted an 11.8% decline in distribution per unit (DPU) to S$0.03 for the second half ended Dec 31, 2023 compared to the same period in 2022. This was due to a slightly enlarged unit base owing to management fees, and its distribution reinvestment plan, which was turned on for the 2022 and 2023 financial years. There was also an absence of a one-off distribution paid out in the same period in 2022. In H2 2022, the manager released S$3.6 million in distributable income – which was retained in H1 of that same year – to unitholders. The China-focused real estate investment trust posted a 2% decrease in gross revenue to S$180.2 million whilst net property income for the second half stood at S$117.5 million, up 2.5%.

CDL Hospitality Trust’s total distribution per stapled security (DPS) for the second half ended Dec 31, 2023 was down 11.1% to S$0.0319. Total distribution to stapled security holders was down 10.7% year-on-year to S$39.8m mainly due to a rise in interest costs comprising funding costs on floating rate loans and on the refinancing of fixed-rate loans, as well as interest expenses incurred on additional amounts drawn to finance asset enhancement works. Revenue for the six-month period rose 5.8% on the year to S$138.3 million, while net property income (NPI) grew 3.7% to S$75.5 million.

OUE REIT, formerly known as OUE Commercial REIT announced that distribution per unit stayed flat year on year at S$0.0104 for its second half ended Dec 31, 2023, even as revenue rose 16.4% on the year to S$146.3 million. Net property income (NPI) for the half year grew 15.9% on the year to S$119.7 million. The higher revenue and NPI was because of the strong operational performance of its Singapore portfolio, driven by the full-room inventory of Hilton Singapore Orchard. “Stable occupancies and rental growth achieved at OUE Reit’s other commercial properties also contributed to the growth,” said the manager. Distributable income climbed 10.8% year on year to S$57.7 million.

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