Market Commentary

US and China inflation data drags stocks lower

• Data showed US inflation hit its highest level since November 1990, dragging US stocks lower while boosting the yield on the 10-year Treasury to 1.57%.

• The Nasdaq Composite bore the brunt of the spike in consumer prices. Tech companies are considered most susceptible to the impact from inflation, as they count on profits years down the line, and higher long-dated bond yields reduce the value of future profits.

• The Nasdaq Composite fell 1.7%, but the other indices felt the pain, too. The Dow Jones Industrial Average dropped 0.7%, while the S&P 500 declined 0.8%.

• US consumer prices climbed 6.2% in October from the same month in 2020, well above expectations of 5.8%. Soaring consumer prices have intensified concerns that the Federal Reserve will need to act more decisively to slow inflation, maybe even be forced to accelerate its quantitative tightening so that it ends this year.

• Markets were indeed suggesting that the inflation numbers will make the Fed more aggressive on interest-rate increases. Yields on two-year Treasury notes, which are highly sensitive to interest rate expectations, rose the most since the market turbulence triggered by the coronavirus outbreak in March 2020. The yield increased 0.09 percentage points to 0.52%, signalling a significant fall in price. The biggest move was in the five-year note, which rose 0.14 percentage points to 1.22%.


• Global concerns over inflation were also inflamed by data showing Chinese producer price inflation –the measure of what businesses pay each other for goods — rose 13.5% in October from the same time last year, its biggest leap in 26 years as factories absorbed higher energy prices.

• The CSI 300 Index slid as much as 1.9% before paring its drop to 4,821, down by 0.53% for the day. Worries over China’s property sector also weighed on overall sentiment as key regional gauges — from Japan, South Korea and Singapore — closed in negative territory.

• Cash-strapped China Evergrande Group again managed to avoid a default by paying overdue interest on three US dollar debts just as another builder, Fantasia Holdings Group’s shares plunged as much as 52% in Hong Kong, following a 6-week halt after the company’s surprise default, while debt woes over at Kaisa Group Holdings worsened worries over China’s liquidity-hit real estate sector and potential financial contagion.

• The Hang Seng turned higher in late trading as real estate developers climbed on a report that China’s bond-issuance policies may be loosened, while Tencent led a surge in tech stocks ahead of its earnings report.


Research Ideas

Mapletree Logistics Trust (MLT SP) Stronger appetite for acquisitions

• 2QFY22 DPU rose 5.7% YoY to 2.173 S cents
• Positive rental reversions of 2.4%
• Raised guidance for FY22 acquisitions to ~SGD1.6b

DPU growth momentum continues

Mapletree Logistics Trust’s (MLT) recent 2QFY22 results met our expectations. Gross revenue and NPI jumped 25.2% and 21.5% YoY to SGD165.1m and SGD144.4m, respectively. DPU rose 5.7% YoY to 2.173 S cents, which was a similar growth pace as compared to 1QFY22. For 1HFY22, MLT’s NPI increased by 21.4% to SGD288.6m, while DPU grew 5.7% to 4.334 S cents and constituted 50.0% of our FY22 forecast.

Positive rental reversions improv ed to 2.4%; portfolio occupancy unchanged at high level of 97.8%

MLT achieved overall portfolio rental reversions of 2.4% in 2QFY22, which was a slight improvement from 1QFY22’s 2.2% rental uplift. This was driven by Vietnam and Malaysia (both +3.0%), Hong Kong (+2.6%) and China (+2.5%). While MLT’s rental reversions trend has been positive, management highlighted that its tenants are still generally cautious given the Covid-19 situation, and hence are resistant towards more significant increases in rental renewal rates. MLT’s portfolio occupancy remained unchanged QoQ at 97.8%, as the increase in Singapore (+0.5 percentage points (ppt) QoQ to 98.1%) and Japan (+0.3 ppt to 96.2%) was offset by declines in China (-0.6 ppt to 95.9%) and marginally in Hong Kong (-0.1 ppt to 99.7%).


Targeting more acquisitions ahead

MLT said that it is seeing an active pipeline of potential acquisitions ahead, including from its sponsor. One potential significant transaction could come from a third-party in Japan in the near-term, while China, Vietnam and Malaysia are markets which it can tap on its sponsor’s pipeline. Overall, management guided that it could be looking at ~SGD1.6b worth of acquisitions in FY22, which would be similar to FY21. This is much more aggressive as compared to the previous quarter where management appeared much more cautious on inorganic growth opportunities. One of the reasons for the change in tone was due to MLT’s sponsor turning more receptive towards divestments. MLT’s aggregate leverage ratio was unchanged QoQ at 38.2%, but is expected to increase to close to 40% after the completion of its announced acquisitions. After some fine-tuning, our fair value estimate remains at SGD2.10.

ESG Updates

MLT has relatively average policies and programmes on managing its ESG risks and opportunities as compared to peers. It has implemented relatively robust employee engagement and career development programmes, such that its employee turnover is significantly lower than the industry average. Given that industrial buildings tend to have less energy and water consumption as compared to retail and office properties, MLT has less opportunities to capitalise on green buildings. It has implemented energy efficiency initiatives and has some LEED-certified properties, but lags peers in obtaining green building certification for a substantial portion of its portfolio. BUY. (Research Team)


Genting Singapore (GENS SP) Looking forward to borders reopening

• 3Q21 hurt by tightened Covid-19 measures
• Impact of VTLs in 4Q21 likely to be limited
• Beneficiary of borders reopening

3Q21 adjusted EBITDA missed expectations

Genting Singapore (GENS) reported its 3Q21 business update which came in below our expectations. GENS’s revenue and adjusted EBTIDA dropped 16% YoY and 31% YoY to SGD251.5m and SGD102.5m, respectively, weighed down by lower gaming (-9% YoY) and non-gaming revenue (-6% YoY) due to tightened Covid-19 restrictions in Singapore during the quarter. Net profit, however, improved 11% YoY to SGD60.7m.

Non gaming rev enue improved 29% while gaming revenue fell 14% QoQ − On a QoQ basis, revenue and adjusted EBITDA fell 9% and 31% QoQ respectively, largely attributable to a 14% decline in gaming revenue in 3Q21 due to tighter safe distancing measures. On the other hand, non-gaming revenue improved 29% QoQ due to several events during the quarter such as the musical sensations at the S.E.A. Aquarium and Halloween season.


4Q21 is likely to remain soft, but better recovery in FY22

Singapore recently announced the extension of dining-in capacity and expansion of Vaccinated Travel Lanes (VTLs) to Malaysia ahead of the end of the Stabilisation Phase on 21 Nov 2021 as the Covid-19 situation has stabilised. Singapore is also in discussion with other ASEAN countries to reconnect. As Singapore moves towards the “living with the endemic” approach, we expect to see further calibrated steps towards reopening which will aid the recovery of GENS in FY22. However, we expect the impact of VTLs on GENS to be limited in 4Q21 as the countries on the list are from GENS’s non-traditional markets. Note that VTL with Malaysia (one of GENS’s traditional source markets) will only start from 28 Nov. After adjustment, we maintain our fair value estimate at SGD0.94.

ESG Updates

Genting Singapore Ltd (GENS) lags its global peers on governance. GENS has related party transactions with the controlling shareholder, Genting Overseas Holdings Limited (52.8% votes held). GENS demonstrates initiatives to mitigate the effects of problem gambling such as advertisements, self-exclusion and voluntary visit limit options. However, unlike better-performing peers, there is no evidence of play safe limits such as voluntary money and time limit settings. BUY. (Chu Peng)


Sino Biopharmaceutical Ltd (1177 HK) – Moving to half yearly reporting

• Company will not release quarterly earnings for 3Q21 and will instead provide half and full year results, to accommodate Sinovac’s request.

• Quarterly reporting is expected to be reinstated after the vaccine situation stabilizes.

• During the recent investor update sessions, the firm shared that 8M21 top line yoy growth momentum has improved from 1H21 while the oncology segment continues to be a key growth driver.

• Fair value is reduced to HKD9.10. Valuations are undemanding, while growth should continue to be driven by its pipeline of new drugs as impact from the pandemic and volume-based procurements gradually improve.

Management held a recent investor meeting which provided updates on its operations. Guidance of a double digit CAGR revenue growth over the next three years was reiterated, which is expected to be driven by the launch of about 100+ drugs across a broader pipeline of both generics and biosimilars, as well as innovate drugs with better commercial potential.

During the recent investor update, the firm has clarified that its decision not to release 3Q numbers is to accommodate Sinovac’s request and does not mean that it is not performing up to expectations.


In terms of operational updates, the firm shared that 8M21 revenues have grown by about 15.5% yoy (vs 1H21’s 13.5% yoy), supported by growth in oncology drugs (which grew +25% yoy in 1H21). Oncology continues to be a key growth driver with sales likely to reach CNY10bn in FY21E.

For FY21, revenues are likely to grow about 10% yoy. Gross profit margin has improved with more contribution from oncology product sales and new product launches. Selling and marketing costs have also improved with higher ex-hospital revenue contribution and should continue to show the same trend. Management shared the firm has achieved over CNY100mn in top line sales for PD-1 since launch in August. The company’s PD-1 was approved for one indication, while it has filed two NDAs in China and one BLA in the US. The oncology review for the US BLA of its PD-1 appears on track. The firm is positive on the potential of Lenvatinib given the strong growth sales of its original drug and combination usage potential, and expects peak sales may reach CNY800mn before GPO addition. For Anlotinib, guidance of above 10% yoy growth was reiterated. The firm expects Anlotinib may receive BLA approval for differentiated thyroid carcinoma from the FDA next year, which will add to its current approved four indications.

Full year 2021 sales of two GPO drugs – Abiraterone and Budesonide – were guided at CNY600mn and CNY1bn respectively, with impact from the GPO expected to ease over time as its key drugs have already been added to the GPO programme.
The firm has received dividends from Sinovac of about CNY80mn and CNY1.5bn for 4Q20 and 1Q21, with more dividends likely, as these are pending the joint venture board’s approval. Receipt of further dividends will be supportive of the firm’s research and development and business development activities ahead.


Fair value is lowered to HKD9.10 as we update our estimates and apply a higher cost of equity assumption. The overhang over the share price looks likely to linger near term in view of ongoing concerns over domestic growth moderation and lower clarity for investors from the recent decision