Date: February 19, 2024
- The STI added 83 points in improved volume to finish at 3,221.84
- Gains were mainly from banks and came despite wobbles on Wall St
- US indices closed lower for the week after strong CPI and PPI data
- Chance of rate cut in March now only 10%
- Keppel Pacific Oak US REIT announced shock distribution suspension
- SGX’s securities turnover in Jan up 8% to 5-month high
- Minority shareholders and SIAS raise concerns about governance at Chemical Industries
- Singapore Institute of Advanced Medicine falls 17.4% below IPO price in Catalist debut
Despite Wall St wobbles, the STI managed to regain 3,200 lost on 3 Jan
The Straits Times Index finally woke from its slumber last week, as a large push on mainly the banks led to an 83 points or 2.64% surge in the index that took it to 3,221.84. It was the first time since 3 January that the STI closed above 3,200.
DBS was probably the index’s largest contributor, starting with week at S$32.54 but ending it at S$33.87 for a net gain of S$1.33 or 4.1%.
There was mid-week blip that occurred on Wednesday following a large slide on Wall Street that came after release of hotter-than-expected inflation numbers. However, after an intraday loss of about 40 points on that day, the STI rebounded to close Wed only slightly lower.
The momentum of that rebound continued into Thursday and Friday in improving volume of S$1.4b and S$1.51b respectively. For the holiday-shortened week, daily average volume was S$1.33b versus S$1.18b the week before.
Wall St ended lower for the week
Stocks slid Tuesday after consumer inflation data came in hotter than expected. The Dow Jones Industrial Average had its worst day since March 2023 when it lost 1.35% as the 10-year yield rose to 4.315%.
The consumer price index climbed 3.1% year over year in January, according to data released Tuesday by the Bureau of Labor Statistics compared to economist expectations at 2.9%. That is down from the 3.4% pace set in December, which was a slight reacceleration from the previous month.
After a rebound on Wed and Thursday, stocks finished lower Friday after producer prices came in hotter than expected. The producer price index rose 0.3% in January from a month earlier, according to the Bureau of Labor Statistics. That was higher than the 0.1% increase expected by economists, according to FactSet.
For the week, the Dow Jones Industrial Average lost 0.07%, ending a 5-week winning streak. The S&P 500 lost 0.42% and the Nasdaq Composite 1.28%.
Bond yields rose, probability of a rate cut in March only 10%
The 2-year US Treasury yield was up to 4.669% on Friday while the 10-year yield rose to 4.292%.
In the futures market, the probability that the US Federal Reserve will keep rates steady at its next meeting on 24 March is 90%, which means that the chance it will cut rates is only 10%.
Keppel Pacific Oak US REIT announced shock distribution suspension
Units of Keppel Pacific Oak US REIT (Kore) came under heavy selling on Thursday and Friday following announcement that it is suspending distributions for two years as its leverage rose to 43.2% as at end-2023 amid a decline in portfolio valuation.
The suspension of distributions caught investors by surprise, even though another US office REIT, Manulife US REIT, had also stopped distributions last year after breaching debt covenants.
Over the two days, the counter sank a total of US$0.102 or 41% to finish the week at an all-time low of US$0.148.
Chief executive of Kore’s manger, David Snyder, said at a briefing it is addressing leverage concerns even though gearing is currently below regulatory and debt covenant limits.
“While the limits are truly 50 per cent, both within our covenants and within the regulatory limits, the banks – because of primarily what they’ve seen happen with at least one of our other competitors – are very reticent to lend against US offices above 45 per cent,” he said, adding that this requires the Reit to raise equity from somewhere.
Kore requires continued capital investments in its portfolio to maintain performance, occupancy and valuation, the manager said.
Other options including divestments and an equity fundraising (EFR) were evaluated. But the current US real estate market is difficult for divestments, while any EFR would also likely be insufficient to solve leverage concerns.
The Business Times quoted UOB Kay Hian analyst Jonathan Koh saying suspending distributions in the second half of 2023, as well as in 2024 and 2025, will help avoid divestments at “dismally low prices” and dilutive EFR exercises.
“This is a painful decision for the management team,” he said. “Management is trying to avoid breaches to regulatory leverage limits or its debt covenants, which could lead to a potential default.”
DBS Group Research said it was “surprised” by the manager’s decision to suspend dividends up to the end of 2025, despite its operational and financial metrics being in line with estimates.
“We believe that the manager is probably proactively building up further liquidity to refinance its near-term debt expiry, in case there is a ‘funding gap’ when refinancing discussion starts sometime in the coming quarters,” said the research house. It is currently reviewing its target price and recommended call for Kore.
SGX’s securities turnover in Jan up 8% to 5-month high
Total securities market turnover value on the Singapore Exchange (SGX) increased 8% month-on-month (mom) in January to a five-month high of S$20.6 billion. Securities daily average value dropped 1.7% to S$935 million mom.
“Singapore’s equities market remained the second-most actively traded in South-east Asia, with net buying by retail investors across index, real estate investment trusts, and small and mid-cap stocks,” said SGX. It added that the benchmark Straits Times Index declined 2.7% on the month to 3,153.01.
The market turnover value of exchange-traded funds (ETFs) rose 5% t to S$291 million. SGX noted that the first active ETF, listed on Jan 31 with assets under management of S$37 million, has attracted new net inflows of S$10 million.
Derivatives traded volume rose 27% on the year in January to 24.6 million contracts, the highest since March 2022, driven by strong increases across equities, foreign exchange (FX) and commodities.
Minority shareholders and SIAS raise concerns about governance at Chemical Industries
Shareholders of Chemical Industries (Far East) (CI) as well as the Securities Investors Association of Singapore (SIAS) have in a letter to the company’s Board raised concerns over issues including a spate of senior management resignations, and money spent on alleged “post-retirement perks” awarded to co-founder and emeritus chairman Lim Soo Peng.
The group of its minority shareholders, who claim to own at least 10 per cent of the shares of the mainboard-listed company, also took issue with the nomination of non-management independent director Lim Yew Nghee – the son of Lim Soo Peng – as deputy chairman.
According to the Business Times, the group of shareholders includes Malaysian chemical manufacturing company Batu Kawan, which holds a 6.55% stake in CI.
The letter comes amid the resignations of CI’s chief executive officer (CEO) and chief operating officer (COO) – both of whom left in Oct last year “to pursue (their) self-interest and personal goals’’ after having served for less than two years.
In addition, the group’s sales and marketing director Yap Yoke Woo, as well as independent director Tay Kin Bee, will leave their positions in February.
In the letter, the minority shareholders noted that the company’s bottomline has been shrinking over the past two years and expressed “grave disappointment at the lack of guidance from the board” at these resignations.
The letter was also sent to SIAS, who responded by querying the company. It said the impending resignation of an independent director reduces the board to just four members, including Lim Soo Peng, the non-executive, non-independent emeritus chairman, adding that the resultant vacuum could pose operational risks to the group.
It asked the board if it would conduct a thorough review of the high attrition rate among senior management and assess the group’s corporate culture. It also asked the board to clarify if it was carrying out a search for a new CEO or COO.
“Clear and proactive communication from the board and management is essential in times of uncertainty,” SIAS said, urging the board to address the concerns promptly to restore shareholder confidence.
Chemical Industries’ shares closed flat for the week at S$0.59.
Singapore Institute of Advanced Medicine falls 17.4% below IPO price in Catalist debut
Shares of cancer-treatment provider Singapore Institute of Advanced Medicine closed below their initial public offering (IPO) price at the company’s Catalist debut on Friday.
The counter opened at S$0.195, down 15.2% from its listing price of S$0.23. By the closing bell, the stock fell further to end at S$0.19, after 6.3 million shares worth S$1.2 million changed hands.
Its offering comprised a public tranche of 4.9 million shares, which were reallocated after a previous offering of 4.4 million shares was nearly 1.4 times subscribed. There were also 109.1 million placement shares.
Earnings in brief
Far East Hospitality Trust’s distribution per stapled security (DPS) for the second half ended December 2023 rose 25.4% to S$0.0217, from S$0.0173 in H2 FY2022. Gross revenue gained 28.6% year on year to S$54.8 million. The stapled hospitality group registered higher revenue contributions across all business segments – particularly in the hotel segment, where contributions grew 36.5 per cent to S$41 million. Net property income (NPI) for H2 rose 24.8% year on year to S$49.8 million, from S$39.9 million. For the full year, FEHT’s gross revenue rose 27.8% on the year to S$106.8 million, while NPI was 27.7% higher at S$98.7 million.
SIA Engineering Company posted a net profit of S$26.9 million for its third quarter ended Dec 31, 2023, more than double the S$12.8 million in the corresponding period a year earlier. Revenue for the quarter increased 40.2% to S$291.7 million from S$208.1 million a year ago. For the nine months ended December 2023, the group’s net profit rose to S$86.2 million, up 90.3%. Revenue jumped 41.3% to S$805.7 million.
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