The decoupling from Wall Street continued

Date: February 13, 2024

  • Local market’s decoupling from Wall St since start of 2024 continued
  • The STI fell 41 points or 1.3% to 3,138.30 even as US stocks hit new highs
  • Rising bond yields didn’t slow upward momentum, S&P 500 closed above 5,000 for the first time
  • Fed officials to speak this week; probability of March rate cut is 17%
  • DBS’s 4Q profit was 3% lower at S$2.27b, full-year profit a record S$10.06b, bonus issue proposed
  • CICT posted 1.7% rise in H2 DPU, analysts positive


The STI fell despite new record highs in the US

As has been the case since the start of the year, the local stock market continued to forge its own path last week, seemingly independent of events on Wall Street.

Even as the major US indices rose to all-time highs, the Straits Times Index, largely powered by rises and falls in the three banks, recorded a net loss of 41 points or 1.3% at 3,138.30.

Excluding Friday’s half-day turnover of S$696.25m, average daily volume was S$1.18b, the 3rd consecutive week that the figure was above S$1b.

Banks contributed the bulk of this – on Wednesday when total turnover was the highest for the week at S$1.24b, business done in the three banks was S$491m or 40% of the total.

DBS alone contributed S$347m when it rose S$0.80 to S$32.45 that day.

Wall St stocks unfazed by rising bond yields

On Wednesday, even with the 10-year Treasury yield rising 0.017 percentage point to 4.108%, the Dow Jones Industrial Average and S&P 500 closed at record highs of 38,677.36 and 4,995.06 respectively.

Reports said the gains were fuelled by the latest earnings reports as well as expectations that sooner or later, the US Federal Reserve will cut interest rates.

On Thursday, the 10-year yield climbed to 4.169% but the Dow and S&P 500 continued to set new records – 38,726 and 4997 respectively. It was the Dow’s eleventh all-time high since the start of the year.

On Friday, although the Dow closed lower, the S&P 500 rose to an all-time high of 5,026.61. The 10-year Treasury yield finished the week at 4.168%.

Fed officials to speak next week; probability of rate cut in March now 17%

Investors will also hear from Fed officials next week. Governor Michelle Bowman will speak at the American Bankers Association Conference on Monday, before Vice Chair for Supervision Michael Barr is slated to speak on monetary policy and bank regulation Wednesday.

Analysts and economists will be watching both speeches closely for the officials’ thoughts on any weakness within small banks–and paying attention to regulators’ response.

In the federal funds futures market, the probability of a 25-basis points cut in March is now 17%.

DBS’s 4Q profit was 3% lower at S$2.27b, full-year profit a record S$10.06b

DBS reported net profit of S$2.27 billion for the fourth quarter ended December, 3% lower recorded in the year-ago period.

The net profit, which included one-off costs, missed a S$2.39 billion consensus forecast in a Bloomberg survey of two analysts.

Excluding one-time items costs from the acquisition of Citigroup’s Taiwan consumer banking business and a S$100 million corporate social responsibility commitment to charitable causes, net profit would have been S$2.39 billion, up 2 per cent on year.

Total income for Q4 stood at S$5.01 billion, 9 per cent higher than the S$4.59 billion in the same period the year before.

Net interest margin (NIM) for the group was up eight basis points (bps) to 2.13% for the quarter, up from 2.05% in the previous corresponding period, and down six bps on the quarter.

Full-year net profit rose 23% to a record S$10.06b whilst full-year income was 22% higher at S$20.18b.

DBS declared a dividend of S$0.54 per share for the period, up from S$0.42 per share in the previous Q4. This brings the ordinary dividend for the full year to S$1.92 per share.

In addition, DBS proposed a bonus issue on the basis of one bonus share for every existing 10 ordinary shares held.

The bonus shares will qualify for dividends starting with the first-quarter 2024 interim dividend and will increase the pace of capital returns to shareholders.

In response, RHB raised its target for DBS from S$34.70 to S$36.10. “Its focus on absolute dividend per share (DPS), versus payout, offers investors ‘bond-like coupons’ with yields that are now too good to ignore, in our view,” RHB said.

It also said management’s plan to grow DPS by S$0.24 per annum could be sustained for the next two to three years. There is also room for capital management initiatives like share buybacks, RHB noted.

For the week, DBS gained S$0.32 or about 1% at S$32.54.

CICT posted 1.7% rise in H2 DPU, analysts positive

CapitaLand Integrated Commercial Trust (CICT) reported a distribution per unit (DPU) of S$0.0545 for the second half ended December, up 1.7% from the previous corresponding period.

This came as gross revenue rose, helped by higher rental and occupancy rates, which supported a rise in net property income (NPI).

Gross revenue was up 4.1% to S$785.2 million for the half-year period and NPI, meanwhile, grew 4% on the year to S$563.6 million. Distributable income (DI) was up 2.1% to S$362.5 million.

For the full year ended Dec 31, 2023, DPU was 1.6% higher at S$0.1075. Distributable income climbed 1.9% to S$715.7 million. Gross revenue was 8.2% higher at S$1.6 billion, while NPI rose 7% to S$1.1 billion for the full year.

The improvement in performance came mainly from higher contributions from Raffles City Singapore, coupled with full-year contributions from the REIT’s 2022 acquisitions, the manager said.

The results led to the counter being upgraded by analysts. Maybank now has a higher target price of S$2.10 compared with S$1.90 previously, after raising its FY2025 estimates by 1.8 per cent and introducing a lower discount rate.

While the REIT’s 5.6% yield stood at the midpoint of its historical range, analyst Krishna Guha said he liked CICT’s Singapore-centric, resilient income profile and strong credit standing.

Meanwhile, RHB’s price target is now S$2.20 compared with S$2 previously, translating to a yield of about 6%.

Selected earnings in brief

Singapore Post (SingPost) reported profit of S$27.7 million for the third quarter ended Dec 31, 2023, down 18.3% from the previous corresponding period. Group revenue dipped 8% to S$455.4 million. The company noted that with 86% of its revenue generated internationally, the strong Singapore dollar has had a significant impact on the group’s consolidated performance. On a constant currency basis, the group’s operating profit would have been down an estimated 3.9% year on year. A strategic review of the group, which aims to make a transition into a logistics business over time, is in the final stage of completion. A formal announcement of the outcome will be made before the end of the financial year.

Manulife US Real Estate Investment Trust reported a 13.3% decline in distributable income for the second half of FY2023, despite higher gross revenue and net property income (NPI). No distribution was declared for the second half ended December 2023 – unchanged from the first half – as the REIT manager will be halting distributions until end-2025 following the REIT’s recapitalisation plan that unitholders approved last year. Revenue for H2 FY2023 grew 6.2% to US$108.5 million, while NPI improved by 6.7% year on year to US$59.2 million. For the full year, revenue was up 2.7% to US$208 million; NPI rose 1.3% to US$114.6 million.

Paragon Real Estate Investment Trust’s DPU for the second half ended December 2023 was down 1.9% on the year to S$0.026. This was despite higher gross revenue which grew 3% to S$145.8 million, while NPI rose 3.3% to S$109 million. It translates to a FY2023 DPU of S$0.0502, which is 9.1% lower than the previous year’s DPU of S$0.0552 based on comparative figures which were prorated in view of Paragon REIT’s change in its financial year-end from Aug 31, 2022, to Dec 31, 2022. Revenue for the full year was up 1.8% year on year to S$288.9 million, while NPI gained 1.7% to S$215.1 million in FY2022’s comparative figures. The latest H2 distribution is expected to be paid on Mar 22, 2024.

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