Date: May 13, 2024
- US stocks rose after jobless claims indicated a cooler economy
- Despite Wall ST’s strength, the STI closed flat for the week at 3,290.70
- All three banks closed lower for the week
- UOB reported 1.6% drop in 1Q net profit to S$1.49b, stock dropped 1%
- OCBC made S$1.4b offer to delist Great Eastern; announced 5% rise on 1Q net profit to S$1.98b; stock fell 1.1%
- Seatrium traded after 20-1 consolidation, stock fell 9.3% over the week
- Cordlife’s substantial shareholder urged shareholders to remove 4 directors at AGM
- This week – US producer and consumer price data to provide more clues on direction of interest rates
The troublesome 3,300 level
The Straits Times Index on Tuesday finally succeeded in staying above the 3,300 level when it closed at 3,300.04. It was the third attempt in recent weeks by the index at breaching a level not seen since August 2023 but unfortunately, the mark was promptly lost the very next day when the STI dropped 1.08% to 3,264, dragged lower by heavy selling of the banks, led by UOB.
By the end of the week, the index stood at 3,290.70, just 2 points lower over the week. This came despite a relatively strong showing by Wall Street, where, without many new developments on the interest rate front, the Dow Jones registered its seventh consecutive rise on Thursday after weekly jobless claims came in higher than expected, suggesting the US economy may be cooling.
The benchmark S&P 500 in the meantime notched a third straight week of gains, and the index has now erased nearly all of its April losses. The index is also now just 0.6% shy of its record closing high.
All three banks lost ground over the week
The reason for the index’s anaemic performance could be traced to movements in the three banks. All three underwent volatile trading during a week when UOB and OCBC reported their latest earnings, and all three recorded losses for the week – DBS dropped S$0.24 or 0.7% to S$35.40, UOB fell S$0.31 or 1% to S$30.34 and OCBC’s loss was S$0.16 or 1.1% at S$14.12.
UOB reported 1.6% drop in 1Q net profit to S$1.49b
UOB reported a 1.6% fall in net profit for the quarter ended 31 March 2024 to S$1.49 billion, beating the mean estimate of S$1.43 billion from three analysts polled by LSEG.
Excluding one-off expenses incurred in the acquisition of Citigroup’s consumer banking businesses, the bank’s net profit would have been 0.7% lower at S$1.57 billion from S$1.58 billion.
Total income remained relatively flat year on year at S$3.52 billion, as a drop in net interest income was offset by gains in net fee income and other non-interest income.
The results translate to an annualised earnings per share of S$3.50 for the quarter, down slightly from S$3.54 recorded in Q1 2023. Return on equity, excluding one-off expenses, stood at 14%, down 0.9 percentage point on the year but up 0.2 percentage point on the quarter.
UOB is maintaining its 2024 guidance of positive growth in total income, amid a low single-digit loan growth and double-digit fee growth.
In response, Maybank said UOB’s management is unlikely to review its 50% dividend payout guidance in the near-term.
“We also note a CET1 (Common Equity Tier 1) of 13.9%, while high, is not excessive especially amidst current uncertainty. As a result, we see limited upside to dividend upgrades or special dividends going forward’’ said Maybank. It raised its target price from S$30.88 to S$31.03 and maintained its “HOLD’’ recommendation.
On Wed after release of UOB’s results, the stock plunged S$0.67 or 2.2% to S$29.88 on volume of 4.5m. There were also steep falls in DBS and OCBC on that day.
OCBC made S$1.4b offer to delist Great Eastern; announced 5% rise on 1Q net profit to S$1.98b
OCBC on Friday announced a S$1.4 billion voluntary unconditional general offer for the 11.56% stake in Great Eastern Holdings (GEH) that it does not currently own, with the aim to delist its insurance arm.
The offer price of S$25.60 represents a 36.9% premium over GEH’s last traded price of S$18.70. It is, however, at a 30% discount to GEH’s embedded value per share of S$36.59 per share as at Dec 31, 2023.
OCBC also said GEH shareholders who are entitled to the S$0.40 final dividend for 2023 declared by GEH will still be paid this dividend if they accept the S$25.60 offer.
The move aims to strengthen OCBC’s business pillars of banking, wealth management and insurance, as well as optimise its capital to enhance shareholder returns, said the bank.
OCBC noted that the privatisation of GEH is expected to be earnings accretive given that the insurer has contributed an average of about S$700 million annually in net profit to the bank over the past 10 years. This translates to an average of about 15% of OCBC’s annual net profit over the decade. After a trading halt was lifted, GEH’s shares surged S$7.02 or 37.54% to S$25.72 on volume of 888,100.
Separately, OCBC also reported a 5% rise in net profit to S$1.98b for the first quarter ended Mar 31, 2024, beating consensus forecast of S$1.85b. Annualised earning per share stood was 5% higher at S$1.76 for the quarter whilst total income for the quarter rose 8% year on year to S$3.63 billion.
Profit contribution for the quarter by Great Eastern rose 28% on the year to S$260 million. This was 104% higher in the quarter, supported by better investment performance and improved claims experience, said OCBC.
In response, OCBC’s shares rose S$0.21 or 1.5% to S$14.12 on turnover of 9.1m on Friday, although they closed lower on the week.
Seatrium traded after 20-1 consolidation, stock fell 9.3% over the week
On Tuesday, Seatrium’s shares traded after a 20-1 consolidation, finishing at S$1.94 which would have been equivalent to a pre-consolidation price of S$0.097. However, it later came under pressure, finishing the week at S$1.76 for a loss of S$0.18 or 9.3%.
Cordlife’s substantial shareholder urged shareholders to remove 4 directors at AGM
On Thursday Cordlife’s China-headquartered substantial shareholder Nanjing Xinjiekou (NX) urged shareholders to attend and vote decisively at the 14 May Annual General Meeting (AGM) on the grounds that corporate governance failures had “eroded customer trust and shareholder value”.
This follows its move to table resolutions to remove Cordlife’s acting chairman Ho Choon-Hou and independent directors Yeo Hwee Tiong, Titus Cheong and Joseph Wong. To replace them, it is seeking to appoint three individuals to the board – Teo Tong Kooi, Xu Tianhong and Cai Yong.
NX holds around 20.3% of Cordlife and together with its affiliate, China Stem Cells (East) Company, it holds 30.2%. Its representative on Cordlife’s board, Chen Xiaoling, said: “Recent events have left us deeply disappointed with how things are run at Cordlife, especially at the board level. They have compelled us to take urgent actions to stabilise the company and restore customer trust and investor confidence.”
NX also questioned the suitability of Cordlife’s newly appointed chief executive officer Ivan Yiu, noting that the 34-year-old former fund manager had no experience in cord-blood banking, but was backed by Ho and other members of the board.
The substantial shareholder said: “We are no longer assured that Cordlife is being run by a professional team capable of making independent decisions in the interests of and for the benefit of Cordlife as a whole’’, adding that it was “perplexed” by Cordlife’s proposal to raise S$8.1 million through a private placement “when Cordlife’s share price was near an all-time low”. It is seeking an injunction to stop this private placement.
The week ahead – more US inflation data
On Friday, Dallas Fed President Lorie Logan said it was unclear whether monetary policy was tight enough to bring inflation down to the central bank’s 2% target.
Hints of progress toward that target will come next week when the Labor Department releases its Consumer and Producer price indexes (CPI and PPI).
Analysts expect the crucial CPI report to show underlying “core” price of 3.6% year-on-year, which would be the coolest reading in over three years.
Investing with Insight: Watch this Week’s Technical Outlook
