Singapore Banking Monthly – Interest Rates Continue to ClimbAuthor: traderhub8
3M-SOR and 3M-SIBOR continued to climb in December Interest rates continued to increase in December. The 3M-SORA was up 39bps MoM to 3.08%, while the 3M-SIBOR was up 23bps MoM to 4.24%. The SORA MoM increase was 2bps lower than the previous month, but still the third highest on record, while the SIBOR MoM increase was 15bps lower than the previous month’s increase of 38bps. The 4Q22 3M-SORA average of 2.68% was 125bps higher than its 3Q22 average of 1.43% and improved by 252bps YoY. The 4Q22 3M-SIBOR average of 3.96% was 149bps higher than its 3Q22 average of 2.47% and improved by 352bps YoY (Figure 1).
Recovery of treasury income to boost SGX’s earnings Treasury income dipped in FY21 and FY22 due to the low interest rate environment. However, we expect a rebound in treasury income in FY23e by at least 8%. Based on historical data, we can see that SGX’s treasury income is lagging behind the Fed Fund Rates (Figure 2). As a majority of SGX’s collateral balances (FY22: S$13.9bn) are placed in Fixed Deposits (FDs) with the tenure spread out, certain deposits are yet to matured and the interest rates have not been refreshed. Nonetheless, moving into FY23 we should expect the treasury income to recover to pre-pandemic levels as they get placed into higher interest FDs. For context, in FY20, SGX earned a yield of 98 basis points on collateral balances of S$13.7bn resulting in treasury income of S$135mn when the Fed fund rate peaked at 2.50%. Treasury income in FY22 was S$49mn, an average yield on collateral of only 36 basis points.
Singapore loans growth slowing down Overall loans to Singapore residents – which captured lending in all currencies to residents in Singapore – rose by 0.67% YoY in November to S$816bn. This was below our estimate of mid-single digit growth for 2022 as the rise in interest rates started to be more fully felt by consumers. Business loans grew by 0.43% YoY in November, as business loans dipped by 1.49% for the month. Loans to the building and construction segment, the single largest business segment, grew 2.64% YoY to S$171.4bn, while loans to the manufacturing segment grew 3.41% YoY in November to S$26.2bn. Consumer loans were up 1.04% YoY in November to S$313.3bn, aided by strong loan demand in the housing segment. Housing loans, which make up ~70% of consumer lending, grew 3.97% YoY in November to S$222bn for the month. Total deposits and balances – which captured deposits in all currencies to non-bank customers – grew by 6.36% YoY in November to S$1,719bn. The Current Account and Savings Account (CASA) proportion dipped slightly to 20.7% (Oct22: 21.1%) of total deposits, or S$356bn, as there was a move towards FDs due to the high interest rate environment.
Hong Kong loans growth dipped in November Hong Kong’s domestic loans growth declined 3.02% YoY and 0.35% MoM in November. The YoY decline in loans growth for November was higher than the decline of 2.70% in October, while the MoM loans growth decline of 0.35% was 87bps lower than October’s loans growth decline of 1.22%.
Source: Phillip Capital Research - 13 Jan 2023 Del Monte Pacific Limited – Record Margins From Price IncreasesAuthor: traderhub8
The Positives + Record gross margins. Gross margin climbed to record high 29.4%, a 2% point rise YoY. Margin gains were from US operations from multiple price increases over the past 18 months. These have supported margins despite raw material and logistics cost pressure. There was also operating leverage from a slower 6% rise in general and administration expenses. + Sharp rebound in Philippines. Sales in the Philippines and International (DMPI) recovered strongly in 2Q23, surging 22% YoY in peso terms to PHP11.3bn. However, revenue in USD terms only improved by 5% due to the weakness in the Philippine peso. Growth stemmed from the transition to new distributors in the last quarter and a rebound in food service (+21% YoY) and convenience stores (+48% YoY) as the lockdowns ease.
The Negative – Rise in net debt by US$505mn to US$2bn. Net debt to EBITDA climbed from 4.3x to 5.6x over the past six months. Whilst total net debt has risen by US505mn YoY to US$2bn in May 2022. Driving up debt levels was: (i) US$366mn increase to US$1250mn; (ii) US$70mn for the purchase of Kitchen Basics. The 40% YoY jump in inventory was due to higher cost of materials, which we believe was in preparation for a strong holiday season. We expect debt to remain elevated due to the redemption of a 6.5% US$100mn Preference Shares in Dec2022. Around 15-20% of total debt is on fixed rates. Source: Phillip Capital Research - 12 Dec 2022 Labels: Del Monte Pac Pan-United Corporation Ltd. – Construction Recovery Slower Than ExpectedAuthor: traderhub8
According to data from the BCA, demand for RMC for the first nine months of 2022 was ~8.8mn cu/m, about 8% lower than our estimate but higher than ~8.5mn cu/m in the same period last year (Figure 1). The construction recovery has slowed, with contracts awarded for the first nine months of 2022 5.3% lower than 2021. Construction progress payments for the same period, however, rose in 2022 by 14.2%. No results update from PanU as it has moved to half-yearly reporting.
The Positives + Construction progress payments for first 9 months of 2022 rose 14.2% YoY. We believe construction progress payments were higher due to the relaxation of border restrictions on the inflow of migrant workers in 2022. This is an important metric, as it tracks work done in the sector.
The Negative – Workplace fatalities hampered recovery. As of 1 Sept 2022, the number of workplace fatalities stands at 36 for the whole of 2022, up from the 28 workplace fatalities reported for the first six months of 2022, many of which were in the construction industry. As a result of the Heightened Safety period imposed by the Ministry of Manpower (MOM), local construction projects are, in general, progressing slower than expected. The time-outs and punitive measures imposed on the sector has slowed construction progress.
– Contracts awarded for first 10 months of 2022 9.4% weaker than 2021. Despite the strong pipeline of projects, contracts awarded slowed in 3Q22 as workplace fatalities hampered project progression rates. Source: Phillip Capital Research - 12 Dec 2022 Labels: PanUnited LHN Limited – Co-living the Growth DriverAuthor: traderhub8
The Positive + Co-living riding on surge in rental rates and capacity. Co-living revenue jumped 38% YoY from higher rental rates and a 25% rise in room capacity in FY22e. New capacity additions were 320 Balestier Road, 75 Beach Road, 115 Geylang Road and a JV properties at 40 and 42 Amber Road and 471 Balestier Road. Fair value gains caused a spike in PBT for co-living.
The Negatives – Facilities management dragged down by dormitory. Facilities management earnings dropped 37% YoY in 2H22 to S$4.4mn. The decline was due to the exit of the dormitory business in mid-2022. The drag from dorm earnings will persist into 1H23. – Rise in net debt from investment properties. Net debt has risen from S$63mn to S$107mn in FY22. The increase in net debt was due to S$53mn invested in investment properties. We expect stability in FY23e cash-flows, as the focus will be on launching and raising occupancy levels of Mount Elizabeth Coliwoo. Bulk of the debt is on fixed rates for the next two years. Source: Phillip Capital Research - 12 Dec 2022 Labels: LHN Singapore Exchange Limited – Growth = Derivatives Volumes + Pricing + Treasury IncomeAuthor: traderhub8
Securities volumes dip while derivatives volumes trend upwards SGX’s securities volume is trending downwards, with the 5MFY23 securities daily average volume (SDAV) down 10.5% YoY at 1,095mn contracts as the market sentiment remained subdued due to macroeconomic factors, and the volumes moderated from a record year in FY22. However, SGX’s derivatives volume is trending upwards, with the 5MFY23 derivatives daily average volume (DDAV) up 9.4% YoY. As market volatility continues to rise, derivatives volume can climb for the rest of FY23e.
Treasury income to tick up in FY23 Treasury income dipped in FY21 and FY22 due to the low interest rate environment (Figure 3). However, we expect a rebound in treasury income in FY23e by 8%. Looking at the chart below, we can see that SGX’s treasury income is lagging behind the Fed Fund Rates. As a majority of SGX’s collateral balances (FY22: S$13.9bn) are placed in Fixed Deposits (FDs) with the tenure spread out, certain deposits have not matured yet and the interest rates have not been refreshed. Nonetheless, moving into FY23 we should expect the treasury income to recover to pre-pandemic levels as they get placed into higher interest FDs. In FY20, SGX earned a yield of 98 basis points on collateral balances when Fed fund rate peaked at 2.50%. Source: Phillip Capital Research - 8 Dec 2022 Labels: SGX StarHub Limited – More DARE, Less PLUS Until FY24Author: traderhub8
Key Highlights Higher cost expected in FY23e. The investments in StarHub’s DARE+ transformation (2022-26) is raised by S$40mn to S$310mn due to increased investments in cloud infinity. Around 24% or S$75mn (Figure 1) has been spent in FY22e including EPL costs, 5G and start-up costs of new businesses. Another S$150mn is expected to be spent in FY23e. The doubling of investments over FY22e is due to the 3-5 month delay in implementation plus an increase in budgeted investments.
Figure 1: Huge opex coming in FY23e Source: PSR
Bulk of the cost savings in IT. Based on the DARE+ transformation roadmap, cost saving and profit growth of S$105mn will materialise in FY24. Around 90% are cost savings. We expect the bulk of the cost savings from FY24 to come from lower maintenance cost and software license fees of legacy systems. Another area of cost saving will be the reduced footprint of physical stores as the business model turns more digital.
Revenue opportunities are less visible. We were less clear on the revenue opportunities post the DARE+ transformation. In consumer mobile, new verticals are being introduced including Gamehub (allowing consumers to play games with expensive hardware with the use of cloud), Protecthub+ (device security and hardware replacement) and Lifehub (mobile health services partnering Alexandra Hospital). The priorities for Ensign are to expand regionally and proprietary solutions (e.g. AI cyber detection). Source: Phillip Capital Research - 8 Dec 2022 Labels: StarHub |