SINGAPORE DAYBOOK :
MAS survey forecasters pull back on 2014 growth
[SINGAPORE] Forecasters polled by Singapore's
central bank expect the economy to expand by 3.8 per cent in 2014 - a less
optimistic outlook compared to three months ago. However, some economists
believe the Republic could chalk up stronger growth for the year, if major
risk concerns are addressed.
Professional forecasters, polled by the Monetary Authority of Singapore (MAS) from late-February, have tempered their 2014 growth projections marginally by 0.1 percentage point, down from the 3.9 per cent median forecast seen in December's survey.
The slip was due to softer growth expectations for all sectors within the economy, except for the manufacturing sector.
Economists The Business Times spoke to said the slight downward revision was likely due to forecasters' concerns about China's shadow banking crisis, and a slower-than-expected recovery in the United States.
Said CIMB economist Song Seng Wun: "Forecasters were polled by MAS from Feb 20, so they would have been looking at January data at the time. There was some initial worry about China's growth momentum then - whether it was slowing down because of credit tightening or government policies. And we did witness a pull-back in activity in the US around then, too, and part of that was because of the cold weather they had been seeing."
Noting that some forecasters are "recalibrating their expectations", DBS's Irvin Seah agreed that economists might have been spooked by China's shadow banking problem, which could have indirect implications on Singapore.
He added: "Some of the weak data coming from the US recently has also suggested that the pace of recovery has not been as fast as what the market had earlier anticipated. I think these are the factors that are contributing to this modest downward adjustment."
UOB's Francis Tan, however, had a different take: "I think people's views on 2014 didn't really change. What drove the downtick in overall GDP was the higher-than-expected actual 2013 GDP numbers that came in - it's an arithmetic reason."
The Singapore economy grew 4.1 per cent in 2013, roundly beating market forecasts and the government's own estimate of 3.7 per cent.
"Because 2013 GDP turned out stronger than we anticipated, the base has become higher. So the lower growth rate reflected this time makes sense," added Mr Tan.
Regardless of the reason behind the lower median forecast, economists agree that 2014's GDP growth will likely exceed the 3.8 per cent estimate - if risk concerns are addressed.
Said Mr Song: "I think once we get beyond what's happening in Ukraine, and the adverse weather that has been affecting Q1 US growth, we should be on much more stable ground for better global growth momentum, especially in the second half of the year."
Mr Seah will also be looking to see whether risks in China remain contained, and if the US economy's gradual recovery keeps on track.
CIMB, UOB and DBS's full-year growth forecasts stand at 5 per cent, 4.3 per cent and 4 per cent, respectively. These estimates put growth at or beyond the highest end of the government's projection of 2-4 per cent.
But the path forward is not without hazards, cautioned economists.
OCBC's Selena Ling thinks labour-intensive services sectors - such as wholesale and retail trade - are "probably feeling the pinch" from the domestic manpower crunch.
Mr Tan agreed: "Even if global conditions get better and we expect greater revenue and business volumes, if companies can't even find people to work for them, it's going to be hard to satisfy the increase in demand. This is a major risk to my forecast."
Mr Seah also thinks that a moderation in manufacturing activity is on the cards, citing easing PMIs (purchasing managers' index) in the eurozone, US, and China. In addition, he thinks the global electronics cycle may have peaked, since the semiconductor book-to-bill ratio, which tracks demand levels, and global semiconductor sales, have moderated.
"While we do not expect the manufacturing sector to dip into contraction mode, the growth pace in the coming months is expected to be tepid," said Mr Seah.
For the first quarter of 2014, forecasters are now expecting lower growth of 5.3 per cent. This fell from the previous median forecast of 5.5 per cent.
For 2015, respondents project GDP growth to reach 3.8 per cent, while headline inflation and core inflation are projected to come in at 2.6 per cent and 2.4 per cent respectively.
(Source: The Business Times)
MARKET SCOOP
Albedo refutes report of scuttled deal
CapitaLand places out remaining Australand stake
(Source: The Business Times)
DBS VICKERS Securities says …
SOILBUILD BUSINESS SPACE REIT | BUY | TP: S$0.765
Soilbuild REIT (SBREIT) announced it has acquired 39 Senoko Way, from Tellus Marine Engineering Pte Ltd for a total consideration of S$18m
The property will be acquired in two phases – an existing 4-storey industrial property (c. S$14.6m) and a proposed construction of a single storey warehouse (S$3.4m)
Upon completion of both phases of the acquisition, the property will have total GFA of 95k sqft
And sits on a long remaining lease tenure of 40 years (including a 30 year extension)
The property will be leased back to the vendor, Tellus Marine Engineering Pte Ltd on a triple net basis for a period of 10 years offering good income visibility to SBRIET
The property is estimated to contribute c. 2% to portfolio and revenues
The initial yield is estimated to be north of 7.5%, which is higher than the portfolio average of 6.3%, implying that the deal will be earnings accretive to SBREIT
Given sufficient debt headroom, SBREIT will be funding this acquisition using debt and gearing is estimated to increase to c. 30.7%
CIMB Securities says …
DBS | ADD | TP: S$20.28
DBS announced its acquisition of Societe Generale’s private-banking business in Singapore and Hong Kong
Along with parts of its trust business, for US$220m (S$279m)
This will add S$16bn to its AUM, bringing DBS’s total wealth-management (WM) AUM to S$125bn and high-net-worth AUM to S$85bn
The purchase will be funded by cash and is expected to add to EPS one year after deal completion in 4Q14
At 1.75% of SocGen’s AUM, the purchase price is lower than the 5.8% of AUM that OCBC paid for ING’s Asia private-banking business in 2009
This is justifiably so, as SocGen is smaller than ING and smaller private banks tend to have higher cost ratios and lower profitability
DBS should be better positioned to derive economies of scale and make SocGen’s WM operations profitable
For that, we are positive on the deal, especially as a “catch-up” with OCBC
WM accounts for only 4.6% of DBS’s income and 21.9% of its fee income
CFO, Chng Sok Hui, has guided that fee income from WM is about 1% of the private bank’s AUM
Based on this figure, the additional S$16bn in AUM should bring in S$160m of WM fee income
Assuming a 90% cost-income ratio for SocGen in FY15, in line with the smaller private banks in Asia
We estimate that the acquisition will add S$13m to DBS’s FY15 net profit (+0.3%)
OCBC Securities says…
SINGTEL | BUY | TP: S$3.74
SingTel has recently won the 2014 FIFA World Cup Brazil broadcast rights on an exclusive basis
This means that it will have to cross carry the content of the month-long tournament with rival StarHub
SingTel said it has also finalized a deal to share the World Cup through free-to-air coverage for key matches (opening, both semi-finals, and the final)
SingTel said it is working with the People’s Association (PA) to bring the matches to community centres and is still working out the number of matches
The standalone pricing for the World Cup 2014 will be S$105 (before GST) for both mio TV and StarHub customers
Recall that way back in 2006, StarHub offered the World Cup package at S$15.75 (Sports Group customers) and S$26.25 (for those not on Sports Group)
And when both SingTel and StarHub jointly won the bid in 2008, the subscription was S$88
Not surprisingly, the hefty increase has drawn some outcry from football fans
But SingTel will offer the World Cup for free to customers who either sign up or recontract with mio TV for mio Stadium+ or Gold Pack packages
With a two-year lock-in period
We understand that StarHub customers with existing BPL contracts are also eligible for the free offer if they extend their contracts
However, StarHub has questioned the move, saying that the offer “sets a precedent for operators
To acquire exclusive content at high prices to lock customers into extended contracts, which runs counter to the cross-carriage regime's objectives."
Professional forecasters, polled by the Monetary Authority of Singapore (MAS) from late-February, have tempered their 2014 growth projections marginally by 0.1 percentage point, down from the 3.9 per cent median forecast seen in December's survey.
The slip was due to softer growth expectations for all sectors within the economy, except for the manufacturing sector.
Economists The Business Times spoke to said the slight downward revision was likely due to forecasters' concerns about China's shadow banking crisis, and a slower-than-expected recovery in the United States.
Said CIMB economist Song Seng Wun: "Forecasters were polled by MAS from Feb 20, so they would have been looking at January data at the time. There was some initial worry about China's growth momentum then - whether it was slowing down because of credit tightening or government policies. And we did witness a pull-back in activity in the US around then, too, and part of that was because of the cold weather they had been seeing."
Noting that some forecasters are "recalibrating their expectations", DBS's Irvin Seah agreed that economists might have been spooked by China's shadow banking problem, which could have indirect implications on Singapore.
He added: "Some of the weak data coming from the US recently has also suggested that the pace of recovery has not been as fast as what the market had earlier anticipated. I think these are the factors that are contributing to this modest downward adjustment."
UOB's Francis Tan, however, had a different take: "I think people's views on 2014 didn't really change. What drove the downtick in overall GDP was the higher-than-expected actual 2013 GDP numbers that came in - it's an arithmetic reason."
The Singapore economy grew 4.1 per cent in 2013, roundly beating market forecasts and the government's own estimate of 3.7 per cent.
"Because 2013 GDP turned out stronger than we anticipated, the base has become higher. So the lower growth rate reflected this time makes sense," added Mr Tan.
Regardless of the reason behind the lower median forecast, economists agree that 2014's GDP growth will likely exceed the 3.8 per cent estimate - if risk concerns are addressed.
Said Mr Song: "I think once we get beyond what's happening in Ukraine, and the adverse weather that has been affecting Q1 US growth, we should be on much more stable ground for better global growth momentum, especially in the second half of the year."
Mr Seah will also be looking to see whether risks in China remain contained, and if the US economy's gradual recovery keeps on track.
CIMB, UOB and DBS's full-year growth forecasts stand at 5 per cent, 4.3 per cent and 4 per cent, respectively. These estimates put growth at or beyond the highest end of the government's projection of 2-4 per cent.
But the path forward is not without hazards, cautioned economists.
OCBC's Selena Ling thinks labour-intensive services sectors - such as wholesale and retail trade - are "probably feeling the pinch" from the domestic manpower crunch.
Mr Tan agreed: "Even if global conditions get better and we expect greater revenue and business volumes, if companies can't even find people to work for them, it's going to be hard to satisfy the increase in demand. This is a major risk to my forecast."
Mr Seah also thinks that a moderation in manufacturing activity is on the cards, citing easing PMIs (purchasing managers' index) in the eurozone, US, and China. In addition, he thinks the global electronics cycle may have peaked, since the semiconductor book-to-bill ratio, which tracks demand levels, and global semiconductor sales, have moderated.
"While we do not expect the manufacturing sector to dip into contraction mode, the growth pace in the coming months is expected to be tepid," said Mr Seah.
For the first quarter of 2014, forecasters are now expecting lower growth of 5.3 per cent. This fell from the previous median forecast of 5.5 per cent.
For 2015, respondents project GDP growth to reach 3.8 per cent, while headline inflation and core inflation are projected to come in at 2.6 per cent and 2.4 per cent respectively.
(Source: The Business Times)
MARKET SCOOP
Albedo refutes report of scuttled deal
CapitaLand places out remaining Australand stake
(Source: The Business Times)
DBS VICKERS Securities says …
SOILBUILD BUSINESS SPACE REIT | BUY | TP: S$0.765
Soilbuild REIT (SBREIT) announced it has acquired 39 Senoko Way, from Tellus Marine Engineering Pte Ltd for a total consideration of S$18m
The property will be acquired in two phases – an existing 4-storey industrial property (c. S$14.6m) and a proposed construction of a single storey warehouse (S$3.4m)
Upon completion of both phases of the acquisition, the property will have total GFA of 95k sqft
And sits on a long remaining lease tenure of 40 years (including a 30 year extension)
The property will be leased back to the vendor, Tellus Marine Engineering Pte Ltd on a triple net basis for a period of 10 years offering good income visibility to SBRIET
The property is estimated to contribute c. 2% to portfolio and revenues
The initial yield is estimated to be north of 7.5%, which is higher than the portfolio average of 6.3%, implying that the deal will be earnings accretive to SBREIT
Given sufficient debt headroom, SBREIT will be funding this acquisition using debt and gearing is estimated to increase to c. 30.7%
CIMB Securities says …
DBS | ADD | TP: S$20.28
DBS announced its acquisition of Societe Generale’s private-banking business in Singapore and Hong Kong
Along with parts of its trust business, for US$220m (S$279m)
This will add S$16bn to its AUM, bringing DBS’s total wealth-management (WM) AUM to S$125bn and high-net-worth AUM to S$85bn
The purchase will be funded by cash and is expected to add to EPS one year after deal completion in 4Q14
At 1.75% of SocGen’s AUM, the purchase price is lower than the 5.8% of AUM that OCBC paid for ING’s Asia private-banking business in 2009
This is justifiably so, as SocGen is smaller than ING and smaller private banks tend to have higher cost ratios and lower profitability
DBS should be better positioned to derive economies of scale and make SocGen’s WM operations profitable
For that, we are positive on the deal, especially as a “catch-up” with OCBC
WM accounts for only 4.6% of DBS’s income and 21.9% of its fee income
CFO, Chng Sok Hui, has guided that fee income from WM is about 1% of the private bank’s AUM
Based on this figure, the additional S$16bn in AUM should bring in S$160m of WM fee income
Assuming a 90% cost-income ratio for SocGen in FY15, in line with the smaller private banks in Asia
We estimate that the acquisition will add S$13m to DBS’s FY15 net profit (+0.3%)
OCBC Securities says…
SINGTEL | BUY | TP: S$3.74
SingTel has recently won the 2014 FIFA World Cup Brazil broadcast rights on an exclusive basis
This means that it will have to cross carry the content of the month-long tournament with rival StarHub
SingTel said it has also finalized a deal to share the World Cup through free-to-air coverage for key matches (opening, both semi-finals, and the final)
SingTel said it is working with the People’s Association (PA) to bring the matches to community centres and is still working out the number of matches
The standalone pricing for the World Cup 2014 will be S$105 (before GST) for both mio TV and StarHub customers
Recall that way back in 2006, StarHub offered the World Cup package at S$15.75 (Sports Group customers) and S$26.25 (for those not on Sports Group)
And when both SingTel and StarHub jointly won the bid in 2008, the subscription was S$88
Not surprisingly, the hefty increase has drawn some outcry from football fans
But SingTel will offer the World Cup for free to customers who either sign up or recontract with mio TV for mio Stadium+ or Gold Pack packages
With a two-year lock-in period
We understand that StarHub customers with existing BPL contracts are also eligible for the free offer if they extend their contracts
However, StarHub has questioned the move, saying that the offer “sets a precedent for operators
To acquire exclusive content at high prices to lock customers into extended contracts, which runs counter to the cross-carriage regime's objectives."
