(Oct 30): Yields on the benchmark US government debt have risen to their highest level in more than six months, ahead of an expected US interest rate hike at year-end. Yields on the 10-year US Treasury bonds rose past 2.45% during the week, as traders took into account optimism over the global economic recovery and stronger indications of growth in the US, even as inflation is expected to remain muted.
Against this backdrop, DBS Bank’s chief economist Taimur Baig said in an emailed note that the US Federal Reserve is likely to pursue a policy of gradual tightening. “We see the Fed funds rate heading to 2.25% by the end of 2018, with another 50 basis points in hikes the following year.”
Bond prices have been falling, after US lawmakers looked to be close to agreeing on a taxcut plan by year-end. There is also speculation that the next US Federal Reserve chair could be more of a “hawk”, or likely to favour tighter monetary policy. Current chair Janet Yellen’s term expires early next year.
Bets on at Genting Singapore
Shares in the casino operator were up significantly, on heavy volume, on Oct 26. The stock gained more than 4% from the day before, and led the day’s gainers on the benchmark Straits Times Index. The stock is up about 38% this year.
The jump comes a day after Las Vegas Sands reported that its Marina Bay Sands (MBS) opera tions had seen an improvement in VIP gaming volumes. In 3QFY2017, rolling chip volumes rose 30.1% from the year before — reaching US$9.4 billion ($12.8 billion) for the quarter. Rolling chip win during the quarter at 3.29% was 0.04 percentage point higher y-o-y.
For the three months to September, MBS registered a 13% increase in adjusted property earnings before interest, taxes, depreciation and amortisation to US$442 million. Turnover was up 4.1% y-o-y to US$793 million, driven mainly by higher revenue of US$629 million from casino operations. Room revenue was down nearly 15% y-o-y, at US$93 million, while F&B sales were 11% lower y-o-y.
Subsequently, a report by CIMB Research noted that the higher VIP business at MBS indicates a sustained return in high rollers to Singapore. This, in turn, bodes well for Genting Singapore, which operates the city state’s other casino at Resorts World Sentosa. However, the CIMB analysts note that the focus on Genting would be on whether the company is able to maintain its market share —particularly in the mass-market space.
Meanwhile, the market is also anticipating updates on the company’s efforts to secure a gaming licence in Japan, following Prime Minister Shinzo Abe’s landslide victory. Genting opened an office in Tokyo last month, and on Oct 24 issued yen-denominated bonds, raising about ¥20 billion ($239 million). Genting is scheduled to release its 3QFY2017 results on Nov 6.
Yongnam hits year-high
CIMB has also initiated a report on structural steel contractor Yongnam Holdings, recommending the stock in the light of the company’s potential to secure significant infrastructure and building contracts. Yongnam’s stock jumped nearly 15% to a one-year high on Oct 26.
Yongnam has supplied structural steel and struts to a number of iconic projects in Singapore, including supports for deep excavation works in the construction of the Marina Coastal Expressway and Thomson-East Coast MRT Line, as well as for Jewel Changi Airport, the Art Science Museum and Gardens by the Bay. With its existing inventory, Yongnam intends to tender for $1.2 billion worth of contracts. This includes about $500 million worth of projects for the North-South Corridor, work for which is expected to be parcelled out soon. CIMB also notes that the company is able to tender for longer-term infrastructure projects, such as the high-speed rail between Singapore and Malaysia and Terminal 5 at Changi Airport.
The brokerage reckons that with such a pipeline, Yongnam could turn a profit in FY2018. The company has recently secured about $100 million worth of projects in Singapore and Myanmar.
The company has made losses for the past two financial years and is estimated to register a loss as well for the current financial year ending in December. For 1HFY2017, Yongnam posted a loss of $5.6 million, versus earnings of $1.3 million a year ago. Turnover was up 8.3% y-o-y to $171.2 million. The company said its margins had declined, owing to lower margins on certain projects. The overall lower level of strutting and fabrication work in Singapore and Hong Kong has also resulted in its overhead costs not being fully absorbed.
Keppel Corp rises on deals
Property and offshore and marine conglomerate Keppel Corp saw significant interest in its stock over the course of the week, with its share price closing at a one-year high on Oct 25.
On Oct 26, the group’s property arm Keppel Land announced that its wholly-owned China unit is divesting its entire stake in Keppel China Marina Holdings for $597.4 million. The divestment is expected to yield a gain of about $290 million for Keppel Land China.
Keppel China Marina indirectly owns an 80% effective stake in a company that owns and is developing a waterfront project in Zhongshan city, China. The residential and marina project, dubbed Keppel Cove, covers nearly 900,000 sq m on Modao Island. The first phase of the development, which comprises 42 villas, a clubhouse and an 82-berth marina, was completed in March.
Separately, on Oct 25, Keppel-KBS US REIT, sponsored jointly by the group’s asset management arm Keppel Capital and KBS Pacific Advisors, lodged its preliminary prospectus for an IPO. The REIT, which will have an initial portfolio of 11 US office properties, is seeking to raise US$448 million. It is expected to start trading on the Singapore Exchange on Nov 9.
The sponsors, which own the REIT’s manager, are subscribing for 119.4 million units. Cornerstone investors, including DBS Bank and Hillsboro Capital, are subscribing for another 246.4 million units.
China’s HNA Group jumps
Shares in Hong Kong-listed HNA Holding Group Co jumped more than 34% in trading during the week to close at a one-year high on Oct 25.
There is speculation that investors in the Chinese conglomerate were likely heartened by the fact that Wang Qishan, who had led the crackdown on corruption, was notably absent from the Communist Party’s new central committee, unveiled at the recently concluded 19th National Congress.
HNA Group has been one of China’s most aggressive conglomerates, having embarked on an acquisition spree amounting to US$50 billion in two years. This includes its offer for Singapore-listed logistics group CWT. Its business interests span airlines, hotels, real estate and financial services. Earlier this year, it was among a clutch of Chinese conglomerates facing questions about their ownership structures and sources of funding for the mega deals they were undertaking.
What to look out for
The quarterly financial reporting season is in full swing again. Among the companies that are scheduled to release their results in the coming week are the hotel real estate investment trusts: OUE Hospitality Trust reports on Nov 1 and Far East Hospitality Trust reports on Nov 2. Raffles Medical Group reports on Oct 30.
Meanwhile, the US Fed’s Federal Open Market Committee will have its two-day meeting on interest rates on Oct 31 and Nov 1. The Bank of England is scheduled to announce its rate decision on Nov 2, along with the release of its latest inflation report.
