Monthly wrap for February 2021: Vaccine optimism vs rising bond yields

Date: March 1, 2021

  • The STI gained 1.6% for Feb at 2,949.04;
  • Optimism came from vaccine news, pessimism from higher bond yields;
  • Wall St’s all-time highs on Wed were erased by fears of rising rates;
  • Wilmar announced record dividend;
  • Sembmarine hopeful that worst of writedowns is over;
  • CapitaLand reported first-ever loss;
  • OCBC and UOB reported lower 4Q profits;
  • Writedowns for Sincere Property dragged CDL into the red.

Opposing forces set the direction

As the month of February unfolded it became apparent that direction would be set by two opposing forces. On the upside was optimism surrounding vaccine rollouts and development, whilst on the downside was pressure from rising bond yields that came because of an improving economic outlook – although the 10-year US Treasury yield was down 6 basis points at 1.46% on Friday, it is still up 12 basis points for the week, after a turbulent session Thursday when it briefly went as high as 1.6%.

Most of the selloff in bonds occurred in the later part of the month and mainly in the final week. The outcome was that the Straits Times Index came close to regaining the 3,000 level but pulled back on Friday, ending the month at 2,949.04.

For the week the index was up 69 points or 2.4% while for the month it gained 47 points or 1.6%.

The bulk of the STI’s rise came last week when after several weeks of “consolidating’’ or to put it differently, looking for fresh reasons to buy or sell, the market week re-attached itself to gains on Wall Street, where stocks rose to new all-time highs because the Food and Drug Administration said Johnson & Johnson’s Covid-19 vaccine looks ready for emergency-use authorization.

On Wednesday last week following the latest vaccine news, all the major US indices ended at new all-time highs but then fell back sharply on Thursday and Friday after pressure in the bond market drove yields higher. The Dow Jones Industrial Average posted a weekly loss of 1.8%, the S&P 500’s fall was 2% and the Nasdaq Composite’s was 4.9%. It was the tech-heavy Nasdaq Composite’s worst week since October 2020.

Wilmar announced a record dividend

Agribusiness firm Wilmar International on Monday announced an 18.6% rise in net profit for the year ended Dec 2020 to US$1.53b which came after an 18.5% gain in revenue to US$50.5b that was driven by growth across all segments. The company has also proposed a special dividend of S$0.065 per share to go with the S$0.13 previously declared, thus bringing the total for the year to S$0.195, the highest since listing.

Wilmar’s chairman and CEO Kuok Khoon Hong described the results as a “good set’’ and added the company is continuing to build its business, especially in China, more integrated plants in new locations and to develop complementary businesses lik soy sauce, vinegar and yeast.

On Tuesday, Wilmar’s shares dropped S$0.12 or 2.2% to S$5.39. Brokers DBS and UOB-kay Hian maintained their “buy’’ calls on the stock with price targets of S$6.67 and S$6.40 respectively.

DBS values Wilmar’s Shenzhen-listed subsidiary Yihai Kerry Arawana (YKA) at 23.8 times earnings and assumes YKA will contribute 60% of Wilmar’s FY2021 net profit. The broker believes its valuation is conservative as YKA is trading above 40 times earnings.

UOB-KH in the meantime, values Wilmar’s China operations at 26 times earnings and its non-China operations at 11 times. It believes that YKA is currently overvalued. Elsewhere, RHB also reiterated its “buy’’ on Wilmar and raised its target from S$6 to S$6.30. Wilmar ended the week at S$5.28.

Sembmarine reported net loss, hopes that worst of writedowns is over

SembCorp Marine reported a net loss of S$582.5m for the full year ended 31 Dec 2020, with turnover down 47.6% to S$1.51b.

Finance director William Goh said Sembmarine is likely to continue booking losses in the first half of FY2021 but as far as writedowns are concerned, he is hopeful that the worst is over.

As at the end of 2020, the group’s order book stood at S$1.82b, comprising S$1.5b of projects under execution and S$310m in ongoing repairs and other projects with firm deliveries this year.

CapitaLand reported first-ever loss

CapitaLand reported a full-year loss of S$1.57b for 2020, the first time it has incurred a loss. This compares with a net profit of S$2.14b in 2019. Most of the loss came from hefty impairments and revaluation losses. The company’s board has proposed a final dividend of S$0.09 per share which translates to a payout ratio of 52% based on cash profit after tax and minority interests, exceeding the 41% average of the preceding four years.

Chief financial officer Andrew Lim said this signals that “CapitaLand remains in a strong, liquid position’’ to be able to reward its shareholders.

OCBC and UOB posted lower 4Q net profit

OCBC announced a net profit of S$1.13b for the 4Q ended 31 Dec 2020, down 9% from a year earlier but higher than the S$956m that analysts had expected. For the full year, the bank has proposed a final dividend of S$0.159 which would bring total 2020 dividend to S$0.318 per share. This represents a payout ratio of 39%, which is in line with the guidance from MAS to cap dividends for 2020 at 60%.

UOB posted a fourth-quarter net profit of $688 million, down from $1 billion a year ago, due to lower net interest income and higher allowances set aside for non-impaired assets. It declared a final dividend of S$0.39 a share, down from S$0.55 a year ago. Together with the interim dividend of S$0.39, the total dividend for the full year will be S$0.78 per share, representing a payout ratio of about 45 per cent.

Writedowns for Sincere Property drag CDL into the red

Property giant City Developments on Friday reported a full-year net loss of S$1.92b for the year ended 31 Dec 2020, compared to a S$564.6m profit a year earlier. This was largely due to a one-off, non-cash writedown of S$1.78b in the company’s China-based investment Sincere Property. CDL last month formed a special working group to restructure Sincere’s loan and liabilities.