Date: May 27, 2024
- Trading was cautious with lower average daily volume
- Wall St took a dive on Thursday after hotter-than-expected PMI numbers
- Hawkish Fed minutes also brought the sellers out
- Probability of Sep rate cut down to 50%
- Nvidia’s earnings beat estimates, now described as “world’s most important stock’’ with market cap more than Amazon and Tesla combined
- Singtel reported 2H loss of S$1.3b, announced “value realisation dividend’’
- Analysts positive over Singtel’s prospects
- Glove & PPE makers in play due to US tariffs on China: SGX Research
- Banks enjoyed S$500m in net institutional inflows in 2024: SGX Research
- Cordlife customers seek legal advice
Trading was marked by caution over direction of interest rates
Trading in the local market was largely cautious in the holiday-shortened week with the Straits Times Index (STI) rising on two days but falling also on two days. The net outcome was a 3 points rise to 3,316.56 that came with average daily volume of S$1.04b versus S$1.22 the week before.
Wall St took a dive on Thursday after hotter-than-expected PMI numbers
The US S&P Global Composite PMI improved to 54.4 in May’s flash estimate, up from 51.3, indicating that business activity in the US private sector continued to grow at a faster pace than in April.
Meanwhile, the S&P Global Manufacturing PMI increased to 50.9 from 50.0 over the same period, signalling an expansion in the manufacturing sector. Additionally, the S&P Global Services PMI rose to 54.8 from 51.
The outcome was that US stocks and bonds took a beating, with the major indices down 0.4-1.5% and the 2-year Treasury yield erasing all its May losses with a spike up to 4.933%.
Hawkish Fed minutes also brought the sellers out
Minutes from the April 30-May 1 policy meeting of the Federal Open Market Committee released Wednesday indicated apprehension from policymakers about when it would be time to ease.
The meeting followed a slew of readings that showed inflation was more stubborn than officials had expected to start 2024. The Fed targets a 2% inflation rate, and all of the indicators showed price increases running well ahead of that mark.
“Participants observed that while inflation had eased over the past year, in recent months there had been a lack of further progress toward the Committee’s 2 percent objective,” the summary stated.
The minutes also showed “various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate’’.
Probability of Sep rate cut down to 50%
At the start of the week, the market was pricing in a 65% probability that the Fed would cut interest rates in September. On Friday, according to the CME FedWatch Tool, the probabilit was down to about 50%.
Nvidia’s earnings beat estimates, now described as “world’s most important stock’’ with market cap more than Amazon and Tesla combined
Now considered by many to be the world’s most important stock given that it produces chips for artificial intelligence (AI), Nvidia last week reported that its sales jumped 262% in the first fiscal quarter, to US$26 billion, 18% that the previous quarter.
Earnings were US$6.12 a share (ignoring noncash costs), up 461% from a year ago and 19% from the prior quarter. They were US$5.98 a share under generally accepted accounting principles.
Both figures easily beat Wall Street’s estimates. Analysts had forecast US$24.6 billion in sales and earnings of US$5.60 a share. Guidance for the July quarter is for revenue of US$28 billion, which exceeds the average Wall Street forecast for US$26.6 billion.
Along with the quarter’s earnings, Nvidia announced it would split its stock 10-for-1 on June 10. The split obliged Nvidia to raise its quarterly dividend from four US cents a share to 10 US cents—so that it would be at least one US cent after the split.
Nvidia’s shares closed at US$1,064.69 on Friday, giving it a market value of US$2.62 trillion, more than the combined market caps of Amazon at US$1.88 trillion and Tesla at US$554 billion. The share price is up 110% this year.
Singtel reported 2H loss of S$1.3b, announced “value realisation dividend’’
Singtel sank into the red with a net loss of S$1.3 billion for its second half ended Mar 31, 2024, compared with a net profit of S$1.1 billion in the same period a year earlier.
This was mainly due to a marked increase in exceptional losses, which included S$3.1 billion in non-cash impairment charges. In the same period last year, the group recorded a net exceptional gain.
The results translate to loss per share of S$0.0813, against earnings per share of S$0.0639.
Singtel’s board has proposed a final dividend of S$0.098 per share, comprising a core dividend of S$0.06 per share and a new value realisation dividend of S$0.038 per share. This is the third increase in dividends since the group’s strategic reset three years ago, Singtel said.
The S$2.5 billion net exceptional loss for the six-month period was mainly due to non-cash impairment charges on the goodwill of Optus, Asia Pacific Cyber Security Business and NCS Australia.
The exceptional loss also included goodwill on Optus Enterprise’s network assets, and a share of “significant fair value losses” at Airtel Africa from the revaluation of US dollar liabilities and derivatives due mainly to devaluation of the Nigerian naira.
Optus, its wholly owned Australian subsidiary, recorded non-cash impairment charges of A$551 million (S$483 million) on its enterprise fixed access network assets.
Analysts positive over Singtel’s prospects
The Business Times on Saturday reported that most analysts are positive over Singtel’s prospects, notwithstanding the latest reported loss. DBS Group Research was positively surprised by the proposed value realisation dividend. It noted that the move indicated that divestment would continue and that shareholders would benefit from them.
“Singtel’s guidance on dividends and core EBIT (earnings before interest and tax) growth is quite positive,” DBS noted. It has raised its target price on the counter to S$3.50 from S$3.27, implying a potential 44.6% upside from the counter’s closing price of S$2.42 on Friday.
HSBC expects dividends and profits to rise as Singtel’s core business grows, driven by cost optimisation and growth at NCS and the data centres. The bank’s research team also expects average revenue per user at Singtel’s regional associates to improve across markets.
HSBC is projecting a compound annual growth rate of 7% for Singtel’s earnings before interest and taxes for Singtel’s FY2024 to FY2027. It believes Singtel’s dividend per share will rise 9% year on year to S$0.164 in FY2025, and 8.5% to S$0.178 on year in FY2026.
RHB raised its target price to S$3.25 from S$3.15, implying a potential upside of 34.3%. It also showed optimism over Singtel’s sharpened narrative on earnings delivery and commitment to surplus cash being returned.
The research team has raised its core earnings estimates for FY2025-26 by 2 to 4% , after rolling forward its valuation and introducing its FY2027 estimates.
Maybank, meanwhile, increased its target price to S$3.24 from S$3.10, saying that some of the fresh capital recycling could come from an additional stake sale in Bharti in lieu of meaningful dividends from the Indian associate.
Glove & PPE makers in play due to US tariffs on China: SGX Research
In a 23 May Market Update, SGX Research said Top Glove, Medtecs International, UG HealthCare and Riverstone have averaged 24% returns in the month-to-date, partially attributed to the Biden administration announcing higher tariff rates for certain imports from China including PPE items such as respirators and face masks, in addition to rubber medical and surgical gloves.
“At the same time, trading activity in these stocks has surged. This month, Top Glove ADT (average daily turnover) has surged more than 5-fold from the preceding 4 months. As a secondary listing, Top Glove also consistently ranks among the 50 SGX-listed stocks with the highest dollar amounts on the prevailing bid & offer’’ said SGX Research.
It added that whilst Riverstone has seen the least returns of the four in May with an 18% gain, it has booked the strongest 2024 year-to-date gains of the four at 38%. “The stock maintains a net cash position, with a consistent dividend payout since listing, and diversifies its revenue with hi-tech cleanroom gloves and premium healthcare gloves’’ said SGX Research.
On 14 May, the US government announced that for certain personal protective equipment (PPE), including certain respirators and face masks, its tariff rates on China imports will increase from 0–7.5% to 25% in 2024, with tariffs on rubber medical and surgical gloves increasing from 7.5% to 25% in 2026.
Malaysia is the largest global producer and exporter of rubber gloves. While the Malaysian Rubber Glove Manufacturers Association (MARGMA) has maintained that these tariffs are not expected to have an immediate impact on the industry, Malaysia-based rubber glove producers and distributors have seen a significant increase in trading activity this month.
Banks enjoyed S$500m in net institutional inflows in 2024: SGX Research
In a 24 May market update, SGX Research said DBS, OCBC and UOB have booked S$500 million in combined net institutional inflow for the 2024 year through to 23 May. The trio also averaged 16% total returns for the period, bringing their average total returns since the end of 2019, to 67% and combined weight in the STI to 51%. OCBC also posted its highest ever close price on 23 May.
Cordlife customers seek legal advice
The Business Times reported that a group of 157 customers of beleaguered cord blood storage firm Cordlife have engaged law firm Peter Low Chambers to advise them in a case against the company.
The group consists of parents whose children’s cord blood were affected by the temperature excursions in Cordlife’s storage tanks and a dry-shipper, as well as parents who were informed that the stored cord blood was of “low risk” or unaffected.
In a media statement, the group, which is coordinated by a nine-member team of parent volunteers, said the law firm will be providing a written legal opinion, based on an agreed-upon scope of queries and concerns raised by parents.
Separately, a group of parents sent a letter to Health Minister Ong Ye Kung on May 6, requesting that intervene to “establish stringent oversight and regulation of cord-blood storage facilities” to prevent lapses from occurring in the future.
The letter, which was seen by BT and signed by more than 200 parents, also asked MOH to ensure that Cordlife does not “destroy any of the cord blood without it undergoing rigorous testing to determine its viability”.
MOH’s e-mail reply, which was seen by BT, noted that the ministry is “closely supervising Cordlife’s rectification of the lapses”, ensuring proper maintenance and monitoring of the tanks’ temperatures during Cordlife’s ongoing suspension.
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