Top Stock Market Highlights of the Week: Tencent, CapitaLand Ascendas REIT and ST Engineering

Welcome to the latest edition of top stock market highlights.

Tencent Holdings (HKSE: 0700)

Chinese internet giant Tencent has released its earnings for the first quarter of 2023 (1Q 2023).

Total revenue rose 11% year on year to RMB 150 billion, with broad-based revenue growth seen across all its major divisions.

Value-added services saw revenue increase by 9% year on year to RMB 79.3 billion, led by a sharp 25% year on year jump in revenue from international games.

Online advertising revenue rose 17% year on year to RMB 21 billion while FinTech and Business Services division saw its revenue increase by 14% year on year.

Operating profit rose 9% year on year to RMB 40.4 billion and net profit increased 10% year on year to RMB 25.8 billion.

Operating metrics were a mixed bag.

The combined monthly average user (MAU) for chat programs Weixin and WeChat inched up 2% year on year to 1.32 billion.

The mobile device MAU for QQ, its instant message software, rose 6% year on year to 597 million.

However, fee-based value-added service registered subscriptions fell by 5% year on year to 226 million.

The pace of revenue growth was the fastest in more than a year, aided by China’s reopening earlier this year.

The company hopes to slowly build up its games pipeline this year after Beijing resumed licensing approvals last year.

Tencent may also look out to acquire as it did in the past with mid-sized game studios.

CapitaLand Ascendas REIT (SGX: A17U)

CapitaLand Ascendas REIT, or CLAR, fresh from releasing its latest business update, has now announced its first acquisition this calendar year.

The industrial REIT is forking out S$218.2 million to purchase “The Shugart”, a research and development facility from Seagate Technology (NASDAQ: STX).

The property has a total gross floor area of 440,028 square feet along with a land tenure of 20 years remaining.

The lease term with Seagate is for 10 years with built-in rental escalations of 2.5% per annum with an option to renew this lease for another decade.

The initial net property income (NPI) yield for the purchase is 8.3% and the acquisition should close by the second quarter of this year.

This purchase will raise CLAR’s overall weighted average lease expiry slightly from 3.8 years to 3.9 years.

Income-seeking investors will be glad to know that distribution per unit (DPU) should see a slight 0.7% increase from the current S$0.15798 to S$0.15908 assuming the acquisition is funded using 40% debt and 60% equity.

A private placement was undertaken to partially fund the purchase of The Shugart, with 183,352,000 new units issued at S$2.727 apiece.

Because of this placement, an advanced DPU of approximately S$0.06141 was declared.

Singapore Technologies Engineering Ltd (SGX: S63)

Singapore Technologies Engineering, or STE, released an encouraging set of financial results for 1Q 2023.

Revenue rose 13% year on year to S$2.3 billion, with the Commercial Aerospace division sporting a 29% year on year jump in revenue to S$873 million.

Urban Solutions & Satcom division saw a sharp 46% year on year surge in revenue to S$434 million.

However, the Defence & Public Security segment saw revenue fall 8% year on year to S$982 million.

If the US Marine division’s revenue was excluded, then revenue for this division would have inched up 1% year on year.

More growth is expected for the Commercial Aerospace division as air travel has recovered to more than 80% of pre-pandemic levels in January and February this year.

China’s reopening also presents a good opportunity for the group.

A total of S$4.9 billion in new contracts was secured during 1Q 2023, bringing STE’s order book to S$25.4 billion, up 10% from the level recorded three months ago.

To mitigate the effects of higher interest rates, STE has increased the proportion of fixed-rate loans to 57% from 53% as of 31 December 2022.

The weighted average borrowing cost is estimated to be in the low 3% range.

STE also announced the setting up of an airframe maintenance, repair and overhaul (MRO) facility with SF Airlines in Hubei, China.

It will be set up as a joint venture (JV) with a registered capital of approximately S$19 million of which STE has a 60% stake.

This JV will operate a greenfield airframe MRO facility that provides MRO services to cargo and passenger planes operating in the Asian region.

It is expected to be completed in 2025.

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Disclosure: Royston Yang does not own shares in any of the companies mentioned.

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