Comprehensive Analysis of Companies – Financial Markets Report

Date: 11 November 2024

Broker: Lim & Tan Securities

Introduction

Welcome to our comprehensive analysis of various companies as covered in the financial markets report by Lim & Tan Securities. In this article, we will provide an in-depth analysis of each company, covering every detail to help you make informed investment decisions.

Major Market Indices

The financial markets have exhibited a range of performances across different indices. For instance, the FSSTI Index closed at 3,724.4, marking a 1.4% increase over the day, a 4.7% increase month-to-date, and a 14.9% increase year-to-date. Comparatively, the Dow Jones, S&P 500, and NASDAQ also showed positive performances, while the UKX Index and HSI Index faced declines. The commodities market saw varied movements, with gold decreasing slightly and crude oil experiencing a significant drop.

Daiwa House Logistics Trust (DHLT)

DHLT announced its business update for the third quarter ending 30 September 2024. During this period, DHLT completed the acquisition of Project Tan Duc 2, its first property outside of Japan. This property is strategically located, connecting Ho Chi Minh City with the Mekong Delta region, and is fully occupied by a single tenant on a long lease.

All leases that expired in 3Q FY2024 were renewed except for one, which was partially renewed. A previously vacated space was also leased at a higher rent. The remaining expiring lease for FY2024 was renewed in October 2024, resulting in a 90% renewal rate for FY2024. This high renewal rate ensured a high occupancy rate of 97.5% for the Japan portfolio as of 30 September 2024. The weighted average lease expiry (WALE) for the overall portfolio remained relatively long at 6.6 years. The underlying performance of the Japan portfolio for 9M FY2024 was lifted by contributions from DPL Ibaraki Yuki, with net property income (NPI) in JPY terms growing by 2.8% year-on-year.

Despite the weaker JPY affecting financials in SGD terms, the impact was partially alleviated by contributions from D Project Tan Duc 2 in Vietnam. As of 30 September 2024, the aggregate leverage was 39.2%, including the unsecured loan for the acquisition of D Project Tan Duc 2. DHLT maintained a high interest coverage ratio of 11.2 times. While the Japan logistics market saw substantial new supply in 2024, the total for the year is expected to be lower than the peak in 2023.

Mr. Jun Yamamura, the Chief Executive Officer of the Manager, highlighted the significance of the acquisition of D Project Tan Duc 2, marking DHLT’s diversification outside Japan into Vietnam. The REIT’s portfolio has grown from 14 properties at listing to 18 properties currently. The Manager is working closely with the property manager on lease renewals and vacant spaces within the portfolio. The Manager is also planning to unsecure the onshore borrowings of JPY36.5 billion to allow for greater financing flexibility.

DHLT’s market cap stands at S\$398 million and trades at 0.8x PB, with a dividend yield of 8.6%. While NPI has seen a drop due to a weaker JPY against SGD, contributions from recent acquisitions are expected to mitigate the impact. The consensus target price of 68 cents implies a potential return of 19.3%, leading to a maintained “Accumulate” rating on DHLT.

Seatrium

Seatrium released its voluntary business update for the third quarter (3Q2024) and nine months (9M2024) ending 30 September 2024. The company delivered three projects year-to-date, including a newbuild jack-up rig to Borr Drilling and a refurbished floating production unit (FPU) to Salamanca FPS Infra. As of 30 September 2024, Seatrium’s net order book stood at S\$24.4 billion, with deliveries stretching to 2031.

In 3Q2024, Seatrium achieved several project milestones, including the commencement of fabrication works for the IJmuiden Ver Beta platform, a 2-gigawatt high-voltage direct current (HVDC) Offshore Converter Platform. Additionally, Seatrium installed the 13,000-tonne Offshore Converter Platform at the Sofia Offshore Wind Farm in the United Kingdom, completing the heaviest lift in the offshore wind industry. The Repairs & Upgrades division continued to perform well, strengthening Seatrium’s position as a leading shipyard for repairs and upgrades. In 9M2024, the Group completed 192 repairs & upgrades projects, including LNG fleet upgrades for Chevron.

Seatrium announced new contracts worth S\$100 million, including a carbon capture & storage (CCS) retrofit for Mitsui O.S.K. Lines, three offshore refits for China Oilfield Services and McDermott, and a major retrofit and refurbishment of a mega yacht from the Middle East. The company also signed a Letter of Intent (LOI) with Japan-based Penta-Ocean Construction to carry out early engineering work for a 5000-ton Heavy Lift Vessel project for the Japan wind market. The EPC contract award is expected in 1Q 2025.

Seatrium continues to make headway in its New Energies business. Aragon, a technology company within the Group, was selected as the engineering partner for Greenstat ASA’s planned Hydrogen Production Facility in Kristiansand, Norway. Seatrium also renewed its partnership with Nanyang Technological University (NTU) to launch the Seatrium New Energy Laboratory, focusing on research in areas such as ammonia release mitigation, carbon capture, and marine electrification, while also offering workforce development programs through NTU.

Despite uncertainties in the macroeconomic environment, the outlook for the offshore & marine industry remains positive. Seatrium achieved strong order win momentum in the first half and continues to see a healthy pipeline. The Group is focused on completing legacy projects, executing its order book, and achieving a leaner cost structure. Seatrium’s market cap stands at S\$6.8 billion, trading at 44x Forward PE and 1.1x P/B, without paying dividends. While the company has faced challenges, including Brazil scandals and CAD investigations, its robust balance sheet and busy yard are expected to drive higher profits. However, with valuations looking fair, a HOLD recommendation is maintained on Seatrium.

DeepRoute.ai

DeepRoute.ai, a Chinese autonomous driving technology developer, has raised US\$100 million from an automaker. The company aims to bolster mass adoption of its systems on vehicles ahead of Tesla in China. DeepRoute.ai expects nearly 200,000 cars to be equipped with its advanced assisted driving system by the end of 2025, up from about 20,000 currently. The system can navigate urban traffic similar to Tesla’s Full Self-Driving (FSD), which Tesla plans to launch in China in the coming months.

DeepRoute.ai plans to launch more than 10 models with its automaker clients in 2025. The growing fleet will generate revenue via a technology licensing fee per car and collect data crucial for its AI technology to evolve faster. Existing backers include e-commerce giant Alibaba, and the sole investor in this round is a Chinese automaker.

Automakers are competing to provide advanced autonomous driving features to attract Chinese consumers amid a price war in the world’s largest auto market. Interest in this area increased after Tesla CEO Elon Musk announced plans to introduce FSD in China. Analysts predict that Tesla’s move will force competitors to grow faster. DeepRoute.ai, founded in 2019, started developing its autonomous driving system without using expensive high-definition maps in 2020.

US Macro Market News

BCA Research indicates that the US economy is currently operating above potential, posing a risk of overheating. This no-landing scenario could cause a drastic re-pricing across markets, which expect a near-perfect soft-landing. The output gap is an unreliable measure for real-time asset allocation, frequently undergoing major revisions.

BCA’s business cycle indicator shows the economy only modestly in overheating territory after cooling from near-historical highs. Another inflation wave is possible but not imminent unless the economy re-accelerates significantly. A no-landing scenario would hurt both stocks and bonds, leading to a modest reversal of the stock-to-bond yield correlation. In this event, investors should seek refuge in cash, inflation-linked bonds, USD, and commodities. Tactical investors could short both equities and bonds.

Since mid-September, bond yields have been rising along with equity prices, reflecting a regime where growth surprises drive markets. However, yield levels now pose a threat to equities. US equity strategists believe earnings surprises will be the main driver of equities rather than yields. However, equities are already priced for perfection as bond volatility picks up, often hurting risk assets. This increase in volatility is appropriate as markets underestimate the odds of economic scenarios outside a soft landing.

There is an elevated risk that either growth will deteriorate or inflation will increase. Investors should remain underweight on risk assets and overweight on safe-haven assets such as government bonds. The US dollar is reacting to higher US Treasury yields, fueled by strong economic data. However, the pendulum has swung too far in favor of US economic expectations, and yields are expected to decrease, cutting off the USD’s strength.

SGX Watch-List

The SGX Watch-List includes 34 companies, with the latest additions being Addvalue Technologies, Renaissance United, Telechoice, Tiong Seng Holdings, Green Build Technology, Global Invacom Group, and Keong Hong. These companies have been added to the watch-list due to various reasons, including financial performance and compliance issues.

Conclusion

In conclusion, the financial markets have shown diverse performances across different indices and commodities. Companies like Daiwa House Logistics Trust and Seatrium have made significant strides in their respective sectors, while DeepRoute.ai continues to advance in autonomous driving technology. Investors should remain cautious and consider safe-haven assets amid the current macroeconomic environment.