Date: February 26, 2024
- UOB, SIA, Genting SIngapore and Sembcorp all rose ahead of earnings but plunged afterwards
- The STI lost the 3,200 mark with a 37-points fall to 3,184.91
- Minutes of latest US Fed meeting suggest no rate cuts anytime soon
- Despite Fed’s stance, Dow and S&P 500 closed at all-time highs, driven by tech stocks, particularly Nvidia
- UOB reported 21.8% rise in Q4 net profit, proposes S$0.85 final dividend – but stock takes a dive
- SIA Q3 earnings up 4.9% to S$659 million, analysts mixed
- Sembcorp reported 15% rise in profit for 2H 2023
- Genting Singapore takes a hit after reporting 31% rise in 2H profit
The STI fell below 3,200 despite Wall St’s strength
The Straits Times Index, which only just regained the 3,200 level on Friday 16 Feb, fell below that mark once again, a likely victim of “buy in anticipation, sell on news’’ which affected index stocks like UOB, SIA and Sembcorp Industries, all of whom ran up ahead of their results announcements but plunged immediately afterwards.
The outcome was a nett loss of 37 points or 1.1% at 3,184.91, a loss that came despite Wall Street being propelled to new all-time highs by rampant buying of technology stocks, gains that came despite signs from the US Federal Reserve that it isn’t considering interest rate cuts anytime soon.
Fed minutes: no rate cut any time soon
On Wednesday, the minutes of the most recent US Federal Reserve meeting were released. “Participants judged that the policy rate was likely at its peak for this tightening cycle,” the minutes read.
“Participants generally noted that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent.”
According to the CME FedWatch tool, the odds that the Fed will keep rates steady at 5-5.25% at its March and May meetings are now 98 and 92% respectively.
The Dow and S&P 500 end the week at new highs
With the spotlight on semiconductor firm Nvidia whose market cap briefly crossed US$3 trillion on Friday, the Dow Jones Industrial Average and S&P 500 finished the week at new all-time highs of 39,131.53 and 5088.8 respectively.
In the bond market, the 10-year Treasury yield on Friday inched lower to 4.261%.
UOB reported 21.8% rise in Q4 net profit, proposes S$0.85 final dividend – but stock takes a dive
UOB reported a 21.8% increase in net profit for the fourth quarter thanks mainly to higher net fee income and other non-interest income.
This included S$94 million in one-off expenses from the lender’s Citigroup integration costs after taxes, which was 35% higher than the S$70 million recorded in the same period the previous year. In Q4 2022, UOB also paid a one-off stamp duty of S$176 million.
The earnings missed a S$1.5 billion consensus forecast for the fourth quarter in a Bloomberg survey of two analysts. If not for the one-off integration expenses, core net profit would have been in line with the projections.
UOB’s board has recommended a final dividend of S$0.85 per share for the half-year period. This brings the full-year dividend to S$1.70 per share, representing a payout ratio of about 50 per cent.
The dividend will be paid out on May 9, after books closure on Apr 29. UOB said its scrip dividend scheme will not be applied to the final dividend.
Maybank said although the payout was within what UOB’s management had guided for, it was still lower than expected.
“There is limited guidance on additional returns to shareholders, in contrast to DBS. This may limit re-rating catalysts in the near term. Following FY23, we have raised FY24-25E EPS by 4-9%. Our multi-stage Dividend Discount Model (using 9.1% cost of equity, 3% terminal) target price is raised to S$30.88 from S$30.86. Maintain HOLD’’.
UOB’s shares rose S$1.19 in the five days before the earnings announcement but fell S$1.26 in the three days afterwards. Between Monday and Friday, UOB’s shares lost $0.94 or 3.2% at S$28.25.
SIA Q3 earnings up 4.9% to S$659 million
Singapore Airlines (SIA) reported a net profit of S$659 million for the third quarter ended Dec 31, 2023, 4.9% higher than the corresponding year-ago period.
This was driven by robust passenger demand, led by a rebound in North Asian markets as China, Hong Kong, Japan and Taiwan reopened, said the group in its Q3 business update.
The rise in net profit was also aided by a lower tax expense, a share of profits from associated companies, surplus on disposal of aircraft, spares and spare engines and higher net interest income.
The net profit figure translates to an earnings per share (EPS) of S$0.16 in Q3 FY2024, up from S$0.103 year on year. Revenue for the third quarter also increased by 4.9%, to S$5.1 billion. It was the first time in SIA’s history that revenue exceeded S$5b.
The group’s operating profit, however, decreased 19.3% to S$609 million due to total expenditure increasing by 9.3% to S$4.5 billion, as non-fuel expenditure and net fuel cost both rose.
For the nine months ended Dec 31, 2023, the group’s net profit rose 35% to a record S$2.1 billion. Revenue for nine-month FY2024 was up 7.4% to S$14.2 billion.
SIA’s shares, which rose S$0.62 or 9.2% between 1 Feb and Tuesday 20 Feb to S$7.37, on Wednesday crashed S$0.70 or 9.5% to S$6.67 on volume of 39.4m. They finished the week at S$6.55 for a nett loss of S$0.77 or 1% on the week.
Analysts issue mixed recommendations on SIA
Following the results on Tuesday, CGS-CIMB downgraded SIA to “hold” from “add” but raised its target price to S$7.30 from S$6.91.
The downgrade follows SIA’s strong share price increase over the past three months and the airline’s guidance on passenger yields continuing to normalise as competitors gradually restore their flight capacities.
CGS-CIMB noted that cargo yields for the period were 51% lower than SIA’s peak in Q3 2022.
After accounting for lower cargo yields and higher jet fuel prices, the research team cut its FY2024 core earnings forecast for the airline by 9%
In contrast, OCBC Investment Research raised its fair value estimate on SIA to S$8 from S$7.29 after raising its price-to-book estimates. It has a “hold” recommendation on the counter.
Citi, meanwhile, has a “buy” call on SIA and a target of S$7.72 and believes the decline in share price could be short term. While the research team is encouraged by the strong demand guidance for the next quarter and overall passenger yield strength in the quarter ended Dec 31, 2023, it is seeking further information from SIA’s management over the softer-than-peer cargo yields.
Sembcorp reported 15% rise in profit for 2H 2023
Sembcorp Industries reported a 15% year-on-year rise in net profit to S$412 million for the second half of its financial year ended Dec 31, 2023, mainly due to higher contributions from gas and related services, as well as the renewables segments.
Earnings per share stood at S$0.2312 Singapore cents for the period under review, up from S$0.2009 cents in the corresponding year-ago period.
Revenue for the period fell 14% to S$3.4 billion due to lower gas prices, as well as lower power prices from the gas and related services segment, offset by higher turnover from the renewables and other businesses segments.
The group proposed a final dividend of S$0.08 per share for the half-year, bringing the total dividend for FY2023 to S$0.13 per share. Once approved by shareholders at the Apr 23 annual general meeting, the dividend will be paid out on May 9, after the record date on Apr 30.
Sembcorp’s shares, which had risen S$0.33 in the week before the results, last week lost S$0.54 or just under 1% at S$5.22.
Genting Singapore takes a hit after reporting 31% rise in 2H profit
Integrated resort operator Genting Singapore reported a 31% rise in net profit to S$334.9 million for the second half of 2023 mainly due to the significant post-pandemic recovery of its businesses across the board, leading to strong revenue gains.
Revenue for H2 rose 26% t to S$1.3 billion whilst earnings per share stood at 5.07 Singapore cents for the full year ended Dec 31, 2023, up from 2.82 cents the previous year.
A final dividend of two Singapore cents per share was proposed for the full year, unchanged from the year before, for shareholders’ approval at the upcoming annual general meeting. The date payable will be announced later.
Genting’s shares, which had risen around S$0.06 or 6% in the week before the results, crashed S$0.10 or 9.7% on Friday to S$0.925 in volume of 143.6m.
Despite higher profit for H2, its core net profit of S$127.1 million for the fourth quarter was 5% lower year on year, and 41% lower on the quarter, missing street estimates.
The sharp fall of earnings compared with the previous quarter far exceeded the seasonal 6% quarter-on-quarter revenue drop as a high number of Singaporeans travelled overseas during year-end holidays, Nomura pointed out.
Maybank highlighted that a 34% quarterly drop in earnings before interest, taxes, depreciation and amortisation (EBITDA) despite a higher VIP win rate, was led by a combination of higher impairment of trade receivables, penalties and write-offs relating to a major hotel brand and marketing expenses to attract more international visitors.
It trimmed its target price to S$1.16 from S$1.21 upon lowering its EBITDA estimate for FY2024 down 6%, and net profit estimate down 11 to 12% to reflect higher impairment of trade receivables, as well depreciation and amortisation.
Investing with Insight: Watch this Week’s Technical Outlook
