Manufacturing PMI eased 0.1 points to 51.1.

For the month of April, Singapore manufacturing showed declines in its purchasing managers' indices (PMI), with overall PMI easing 0.1 point to 51.1 and electronics PMI dipping to 51.6 from 51.8.

This points out that the industry is showing tentative signs of peaking, DBS Group Research noted.

While the said declines were marginal, DBS Group Research said the sub-indices may be suggesting that manufacturing activities could be nearing the peak.

The indices for new exports and new orders have moderated, pointing to some degree of softening in demand. Likewise, inventory stock levels and import indices also reflected slower activities from the supply side.

"Nonetheless, overall manufacturing and the electronics PMIs have been in expansion mode for the past 8-9 months. It has been a fantastic run for the manufacturing sector but at some point in time, the growth rate would naturally start to taper off," DBS said.

DBS Group Research noted that the strong performance of the sector has been largely driven by consumer demand.

"To sustain the current pace of expansion, much will really depend on companies increasing their capital expenditure in the coming months. That is, capital investment growth in key markets, such as the US, China, and to a lesser extent, the Eurozone, would have to increase in order to provide further impetus to manufacturing activities," it explained.

The group eyes improving its net loss of $16m in the country.

Newly-seated Sembcorp Industries’ CEO Neil McGregor will be reviewing the group’s focus on performance, sustainability, and value creation especially in urban development overseas.

A report from CIMB said that improving the ROIC in India will likely be McGregor’s next priority, considering that the group suffered a $16m net loss in the country.

“Refinancing of interest costs paid off in TPCIL, as the plant turned in higher-than-expected profit of $12m (4Q16: -$4m). The project loan of $1.4b was refinanced on lower interest rates of 10% from 13%. Despite the plant shutting down on January 17, PLF inched up QoQ to 83% in 1Q17 (4Q16: 81%) with a better heat rate, suggesting that the worst could be over,” CIMB said.

Meanwhile, utilities and urban development are expected to remain core for SCI, but CIMB does not expect McGregor to make major changes that will shake up business in the short-term, though his influence is expected to be felt over time with new priorities in focus.

Here’s more from CIMB:

Our FY17 EPS is adjusted up by 15% on higher urban development. Downside risk could be limited with one less problematic plant in India to tackle. Singapore’s earnings have also bottomed out as 1Q17 came in slightly above expectations ($34m), with no one-offs.

With every new CEO, SCI has seen transformation and rationalisation, which we believe could be a catalyst. 

There is a total supply of 826,000 sqm of GFA.

A lot of office spaces are in the pipeline for the next four years, figures from the Urban Redevelopment Authority showed.

According to URA, 97,000 sqm of office space was completed in the first quarter of this year, and there is 267,000 sqm more to come.

For next year, there is already 187,000 sqm of space in the pipeline.

Until 2021, there is a total supply of about 826,000 sqm gross floor area (GFA) of office space in the pipeline.
 

Thanks to its selective lending strategy.

For the past quarter, UOB's customer spreads improved as lending yields rose from higher SGD interest rates.

According to Maybank KimEng, this is attributable to UOB’s ‘selective lending’ strategy to ensure no significant margin compression from customers of good quality.

With this, it has recorded loan growth in Singapore, Thailand, and Greater China, ending the period with expansions of 6%, 20%, and 22%, respectively. Loans classified under Others grew 22%.

The increase in Thailand’s loan growth was mainly from housing loans, Greater China from the financial institution (FI) and general commerce loans, and Others (Australia, US) from FI loans. FI lending saw robust growth, at 27% YoY. 

Thanks to lower expenses.

Frasers Logistics & Industrial Trust (FLT) reported its 2Q17 results which slightly exceeded expectations.

According to OCBC Investment Research, FLT's gross revenue came in at A$40.9m whilst DPU clocked in at 1.75 S cents. Its actual property operating expenses came in 2.3% below what is expected. Meanwhile, its net property income was 2.4% higher than forecast at A$34.5 million.

For 1H17, FLT’s gross revenue and DPU of A$80.6m and 3.49 S cents.

"Operationally, FLT’s portfolio occupancy remained high at 99.3%, while WALE is healthy at 6.7 years. Looking ahead, we expect FLT’s portfolio to remain resilient, as it only has 0.2% and 3.6% of lease expiries (by gross rental income) for the remainder of FY17 and FY18, respectively. In terms of financial position, FLT has a low gearing ratio 28.9%, as at 31 Mar 2017," OCBC Investment Research said.  

One of the larger programs is the Productivity and Innovation Credit.

A report from Reuters said foreign precision engineering firms are investing more in Singapore, drawn by strong semiconductor demand and government incentives aimed at re-tooling an economy short of skilled labor.

The city-state is running programs worth billions of dollars to support productivity, automation and research, attracting global chipmakers including U.S.-based Micron Technology Inc and Germany's Infineon Technologies.

This investment rush into electronics helped the technology sector log 57 percent output growth on average in October-February from a year ago, and kept Singapore from recession late last year.

Read more here.
 

These led to its shareholders' abrupt decision to withdraw.

Lower usage, competitive data pricing, and the looming arrival of Australian player TPG have cast doubts on the sustainability of M1 as a Singapore telco. According to BMI Research, its shareholders' abrupt decision to withdraw is the clearest sign yet that the business, in its current form, is not sustainable. 

“As such, we believe new investors would need to be cash-rich, risk-averse and prepared to settle for a modest share of the market,” BMI Research said.

This unsustainability shows in M1’s numbers, particularly in its mobile segment. For one, whilst it continued to add subscribers in the past year, reaching 2.02 million a customer base in the last quarter, full-year revenue fell by 8.3% to $1.061b. 

Also, its handset sales saw a particularly steep decline from $335mn for FY15 to $255mn for FY16, while mobile revenue fell from $668mn to $640mn over the same period. It led to an 8.7% decline in after-tax profit for the said year to $312mn, which it attributed to higher depreciation and interest costs.

Lastly, Monthly minutes of use (MOU) also fell by 5.6% to 203 for postpaid customers and 9.6% to 191 for prepaid users, whilst net ARPU declined by 2.3% for postpaid users to $49.5 and 4.5% for prepaid users to $11.

“M1's blended ARPUs have consistently lagged behind competitors, a trend we attribute to the operator having lesser pricing power due to its smaller market share and also its strategy of targeting the less financially capable market segment,” BMI Research noted.

In the face of greater price competition and uncertainty over the company's future strategy, M1's owners welcome a sale, which would allow Axiata to avoid the risk of adding more to its existing debt pile, Keppel T&T to divest a non-core business, and SPH to focus on its core media business which is challenged as content consumption migrates online.

In the end, M1 could benefit from a clearer strategy with a single shareholder, rather than three, to compete with TPG's strong strategy for the Singapore market.

Thanks to contributions from Mandarin Gallery.

OUE Hospitality Trust's reported healthy numbers for the quarter ending in March, with both head and bottom lines registering uptrends.

According to OCBC Investment Research, the trust's revenue increased 6.4% to $32.1m whilst its net property income jumped 4.3% to $27.4m.

The bulk of its NPI came from Mandarin Gallery, whose retail NPI increased 17.6% YoY to $6.4m whilst hospitality NPI increased 0.9% YoY to $21.0m.

"We note that the average occupancy rate at MG is 94.7%, up
11.8 ppt from 1Q16. This more than compensated for the 2.8% lower effective rent of $23.7 psf per month," the brokerage firm said.

Here's more from OCBC Investment Research:

Additional master lease income of S$1.6m from CPCA offset the S$0.6m lower contribution from Mandarin Orchard Singapore (MOS). We note that MOS’s 1Q17 RevPAR dropped 2.3% YoY to $217, due to lower rates despite the higher occupancy.

As a comparison, CDLHT’s RevPAR for its Singapore hotels dropped 0.8% YoY in 1Q17. MOS’s lower room sales were partially compensated by higher F&B revenue.

As we noted in other reports recently, we expect a significant supply injection in 2Q17 with ~2.8k rooms expected to come on-stream. In contrast, the hotel room supply is estimated to have increased by only ~130 rooms in 1Q17.

Despite these headwinds, we remain optimistic on OUEHT given the positive contributions from the recovery in contributions from Mandarin Gallery and the stabilizing effect of the enlarged CPCA. In addition, we note that the renovation of 430 rooms of MOS has completed and expect this to help OUEHT command better rates. 

E-commerce turnovers contributed less than 1% of total sales in Q1.

Supermarket giant Sheng Siong is losing to its competitors in terms of e-commerce initiatives.

UOB KayHian said in the face of rising competition from NTUC, Redmart and possibly Amazon, SSG has not expanded its e-commerce presence in Singapore.

"We estimate that out of SSG’s 1Q17 sales, e-commerce related turnover accounted for less than 1% of total sales," UOB KayHian noted.

The brokerage firm said this static effort could be attributed to the conservative nature of SSG’s management.

"However, we believe the company should be taking a much more aggressive approach to expanding its e-commerce reach in Singapore," it noted.

MAS may step in to prevent the currency from strengthening further.

The Singapore dollar has appreciated by 4.7% since January, but further gains would likely be limited as BMI Research predicts.

"With the Monetary Authority of Singapore (MAS) having kept its Singapore dollar policy on hold at its bi-annual meeting in April 2017 and likely to remain on hold through October, we believe that further gains are likely to be limited," BMI Research said in a report.

It noted that SGD's nominal effective exchange rate and real effective exchange rate have been strengthening, leading for it to trade at the midpoint of the central bank's policy band. This suggests that excessive strength is unlikely as the MAS will seek to prevent the currency from trading above the band amid the still-uncertain growth outlook.

"However, we expect the real interest rate differential between Singapore and the US to remain in favour of the SGD over the coming quarters, supporting the SGD. While Singapore's interest rates are linked to that of the US, inflation in Singapore is likely to remain considerably lower than that of the US," BMI Research said.

In terms of long-term outlook, the currency is expected to average S$1.41/US$ this year, and S$1.37/US$ in 2018 as a strong external position, low inflation relative to the US, and a solid fiscal position provide support for the currency.

"However, significant strength will be capped due to a weaker CNY and a cautious MAS, which will seek to prevent excessive SGD strength lest it undermines Singapore's exports.," BMI said. 

The changes will implement an "opt-out" approach for digital property tax notices.

The Ministry of Finance announced a public consultation on the proposed amendments to the Property Tax Act of Singapore.

The proposed changes comprise of three amendments intended to update the legislation and to improve tax administration. For one, the changes will clarify that machinery that is used for providing the setting / controlled environment for business and industrial processes to take place in the building or for storage of articles is to be assessed, together with the land or building on which it has been affixed, for property tax.

"In other words, such machinery is not exempted from property tax. If approved by the Parliament, this change is to take effect from 1 January 2018. The amendment will provide clarity and certainty to taxpayers," MOF said in a statement.

Meanwhile, the changes will also provide the basis to implement an “opt-out” approach for digital property tax notices.

"The widespread use of computers and mobile devices allows taxpayers to receive digital instead of hardcopy tax notices. The use of digital notices gives taxpayers greater convenience, security and timeliness of alert. To enable more taxpayers to benefit from digital channels, the Act will be amended so that taxpayers who wish to continue receiving hard copies can opt out while others will receive digital tax notices," the finance ministry noted.

More so, the amendments to the law will provide clarity and will enhance the information gathering powers of the Comptroller of Property Tax, the Chief Assessor and the officers authorised by either of them in that behalf.

According to MOF, the changes will allow the Comptroller of Property Tax, the Chief Assessor and their authorised officers to do the following:

• Require persons to attend personally before the Comptroller, Chief Assessor or an officer authorised by them, to provide information at a time and place specified by them.
• Require any person to be examined orally and provide information for investigation by the Comptroller, Chief Assessor, or an officer authorised by them, if the person appears to be acquainted with the facts and circumstances concerning the person’s or another person’s properties.
• Enhance the penalties for failure to comply with a request of information made by the Comptroller, Chief Assessor or an officer authorised by them. This amendment will strengthen IRAS’ enforcement and information-gathering powers.

Expired leases will be returned to HDB instead.

National Development Minister Lawrence Wong made it clear that the vast majority of HDB flats will not qualify for the Selective En Bloc Redevelopment Scheme (SERS), where the State buys back the flats from owners at market rate and offers residents discounted new units elsewhere.

According to OrangeTee's HDB Market Pulse, HDB flats with expired leases that do not qualify for SERS will be returned to the HDB.

The impact of the clarification is expected to be mild, OrangeTee said, as the majority of old HDB flats still have over 50 years of lease remaining.

"Besides the remaining lease, there are other factors which affect the resale price of an HDB, such as current economic conditions, local supply and demand dynamics, availability of nearby amenities, upgrading works etc. For example, the prices of old 3 room flats in Bukit Merah have seen an uptrend in prices from 2001 to 2013 despite their declining lease," it said.

However, OrangeTee argued that the announcement serves as a reminder for people to exercise prudence when buying an old HDB flat as the resale HDB market may not experience a similar boom in prices as before in 2006 to 2012.
 

Blame the lacklustre mobile and service revenues.

Singapore telco StarHub reported a 21.3% lower net profit for the quarter ending in March, down to $73.1m from $92.8m recorded last year.

This came even with the slightly higher revenue of $592m, which was badgered by lower service and mobile revenue.

For the quarter, StarHub recorded customer growth for both prepaid and postpaid mobile services. Broadband revenue inched slightly upwards while enterprise fixed revenue grew 3% YoY. In terms of total revenue mix, mobile services continued to be the major contributor at 50%. Pay TV, broadband, enterprise fixed services and sales of equipment contributed 15%, 9%, 17% and 9% respectively.

Here's more from the group:

Mobile revenue was 1% lower at S$296 million compared to the same period a year ago. The prepaid and postpaid customer base grew by 43,000 and 48,000 YoY respectively. Comparing to a year ago, both the prepaid and postpaid ARPUs decreased by S$2 to S$15 and S$67 respectively.

Pay TV revenue was 7% YoY lower at S$88 million due to a 41,000 drop in customer base to 487,000 households. YoY, churn rate was kept low at 0.9% and ARPU remained stable at S$51.

Broadband revenue was slightly higher at S$54 million compared to a year ago, contributed mainly by an increased mix of customers on the higher speed fibre plans. For the quarter ended 31 March 2017, ARPU also saw an uplift of S$1 to S$37. The residential broadband customer base decreased by 3,000 to 470,000 households.

Enterprise Fixed revenue increased 3% YoY to S$99 million. Data & Internet services revenue, which contributed 89% to the Enterprise Fixed revenue mix, was at S$88 million. Voice services revenue decreased 19% to S$11 million mainly due to lower traffic from IDD and international interconnect services.

The number of households with three or more services stood at 338,000 households. This was lower compared to 350,000 households a year ago, primarily due to higher churn in overall TV households.

It now owns a 51% share in SPTel.

ST Electronics, an arm of Singapore Technologies Engineering, has announced that it has completed an acquisition of a 51% share in SP Telecommunications PTE Ltd (SPTel) for a consideration of $55m, with Singapore Power (SP) holding the remaining 49%.

The company states that the shareholders' agreement established between the companies in this acquisition will regulate their respective rights and responsibilities as shareholders of SPTel.

Both ST Electronics and SPTel stand to benefit with this acquisition going forward.

“The combination of the Info-Communications Technology (ICT) expertise of ST Electronics and the assets of SPTel will enhance ST Electronics’ capabilities in providing ICT solutions for government and enterprise customers. This is in line with ST Electronics' strategy to build a more comprehensive suite of ICT offerings and strengthen its position in the Smart City market.”
 

Two Peugeot 3008 will be road-tested in September.

A report from Reuters UK said French carmaker Peugeot is partnering with Boston, Massachusetts-based tech firm nuTonomy to test self-driving cars in Singapore.

nuTonomy's software, sensors and computing platforms will be installed in Peugeot 3008 models as part of plans to develop the technology needed for large fleets of autonomous cars.

The latest PSA Group project seeks to work on "level 5" autonomous capable vehicles, which require no driver input, and will allow both companies to study how an "on-demand autonomous vehicle mobility service" performs, they said.

Read more here.

 

It could translate into a 3.2% property yield.

CapitaLand Commercial Trust (CCT) recently announced that it has sold 50% of One George St (OGS) to insurer FWD Group.

According to CIMB, the deal is based on an agreed value of OGS of $1.18b or $2,650psf, which is 16.7% higher than its past valuation. This translates into an annualised 3.2% net property yield, pushing CCT to expect and recognise a gain of $84.6m.

"Sale proceeds are expected to be used for either repaying borrowings or to fund growth opportunities. Assuming repayment of loans, its gearing is likely to decline to 33.6% from the present 38.1% as at Dec 16," CIMB said.

It added, "We see this capital-recycling move as positive for the trust. The increased debt headroom as well as the cash proceeds will increase the group’s financial flexibility, including funding growth opportunities, such as the potential redevelopment of Golden Shoe Carpark. Assuming a post-sale gearing target of 40%, CCT has potential debt headroom of c.$850m."
 

It recorded growth across all industries.

DBS showed healthy lending growth in the past quarter, up 7% YoY in constant currency terms.

Amongst all industries, the bank recorded significant loan growth in sectors such as financial institution, and transport, storage & communication, up to a nearly 25% expansion. Meanwhile, general commerce loans reversed its negative growth for the past year, reflecting an estimated 10% growth.

In terms of the geographical origin of loans, only loans in South and Southeast Asia recorded a slump in the past quarter albeit at a measly -2% to -3%.

Check out these two charts from Maybank KimEng: