24 March 2023: Raffles Medical Group Ltd (RFMD SP), Shandong Gold Mining Co., Ltd. (1787 HK), Barrick Gold Corporation (GOLD US)

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Raffles Medical Group Ltd (RFMD SP): A defensive stock amidst a market downturn

RE-ITERATE BUY Entry 1.40 – Target – 1.50 Stop Loss – 1.35
Raffles Medical Group is a leading integrated private healthcare provider in the region, operating medical facilities in thirteen cities in Singapore, China, Japan, Vietnam and Cambodia. The Group is the first Asian member of the Mayo Clinic Care Network. RafflesMedical clinics form one of the largest networks of private family medicine centres in Singapore. RafflesHospital, the flagship of Raffles Medical Group, is a private tertiary hospital located in the heart of Singapore offering a wide range of specialist medical and diagnostic services for both inpatients and outpatients.
Post-COIVD era tailwinds. Singapore continues to see an increase in foreign demand in the healthcare sector, with many foreigners opting for treatment in Singapore. As Singapore opens up its borders, foreign patients return to seek treatment at Raffles Hospital. Singapore residents who postponed their elective surgeries also returned for treatment. Meanwhile, inflation is expected to taper this year, and hence decreasing operating costs will continue to improve its profitability.
Defensive counter amidst market turmoil. The recent banking crisis in the US and Europe markets resulted in rising bearish sentiments which more or less spread to the Asia market. The sell-down in the healthcare services sector creates a buying opportunity as the fundamental remains sound.
FY22 results review. Revenue moderately rose 5.9% YoY to S$766.5mn. Operating profit jumped by 61.4% YoY to S$195.8mn. PATMI jumped by 70.5% YoY to S$143.5mn.
Updated market consensus of the EPS in FY24/25 is 1.9%/3.7% respectively, which translates to 20.0x/20.6x forward PE. Current PER is 17.9x. Bloomberg consensus average 12-month target price is S$1.72.

(Source: Bloomberg)

Oversea-Chinese Banking Corp Ltd (OCBC SP): Bank run leads to capital runs away

RE-ITERATE BUY Entry 12.05 – Target – 12.45 Stop Loss – 11.85
Oversea-Chinese Banking Corporation Limited offers a comprehensive range of financial services. The Company’s services include deposit-taking, corporate, enterprise and personal lending, international trade financing, investment banking, private banking, treasury, stockbroking, insurance, credit cards, cash management, asset management and other financial and related services.
Capital inflow. The recent crisis at Credit Suisse, Switzerland’s second-biggest bank, and the failures of Silicon Valley Bank (SVB) and Signature Bank in the United States have increased concerns of financial contagion on a global scale. Despite measures in place to bail these banks out of trouble by Swiss National bank and the US government, there are still strong bank solvency fears. Some depositors in the Asia region may choose to shift their funds to perceived safer banks in Singapore, which are heavily regulated by the Monetary Authority of Singapore (MAS). The MAS has assured that the local banking system will remain sound and resilient as the banks are well-capitalised and conduct regular stress tests against interest rate and other risks, allowing them to weather potential stresses from global financial developments. Furthermore, MAS has also stated its readiness to provide liquidity to ensure that Singapore’s financial system remains stable and markets continue to function in an orderly manner.
Rate cut expectation leading to refinancing. Due to the recent bank collapses in the US leading to heightened volatility in global financial markets, the Federal Reserve is expected to be more cautious when raising rates. The overall market believes that the Feds will also attempt to decrease systemic risk in the financial sector by reducing interest-rate hikes and start to cut rates by 3Q23, with interest rates expected to peak at 4.75% to 5.00%. With the expected decrease in interest rates, borrowers could refinance their loans which were granted at higher rates.
FY22 results. Group net profit increased 18% YoY to S$5.75 bn, from S$4.86 bn in FY21. Net interest income grew 31% from S$5.86 bn to a record S$7.69 bn in FY22.
Updated market consensus of the EPS growth in FY23/24 is 21.0%/2.9% respectively, which translates to 7.9x/7.8x forward PE. Current PER is 9.5x. Bloomberg consensus average 12-month target price is S$14.44.

OCBC’s P/B is below the 10-year average
(Source: Bloomberg)

(Source: Bloomberg)

Shandong Gold Mining Co., Ltd. (1787 HK): Back to a safe haven

RE-ITERATE BUY Entry – 15.6 Target – 17.0 Stop Loss – 14.9
Shandong Gold Mining Co., Ltd. is a China-based company principally engaged in the mining, processing and sales of gold. The Company operates two segments. The Gold Mining segment is engaged in the mining of gold ore. The Gold Refining segment is engaged in the production and sales of gold. The Company is also engaged in the distribution of other metals extracted during the gold ore smelting process, such as silver, copper, iron, lead and zinc. The Company conducts its businesses in domestic and overseas markets.
Discovery of a huge gold deposit. China has discovered a super-large gold deposit, the Xilaokou gold mine in Rushan, East China’s Shandong Province, with an estimated reserve of 50 tons, which can be sold for around $3 bn at the current market price. After 8 yeaers of prospecting, the Xilaokou gold mine has become the largest known gold deposit in the region, and the largest discovered in 2023 so far. China has been enlarging its gold reserves and output amid regional geopolitical risks and the global economic downtrend.
Financial crisis 2.0. Recently, a black swan event occurred in the US banking sector. The failure of Silicon Valley Bank (SVB) marked the second-largest bank failure in US history. The US Federal Deposit Insurance Corporation (FDIC) seized the assets of Silicon Valley Bank on Friday. The bank had $209bn in assets and $175.4bn in deposits at the time of failure, the FDIC said in a statement. The bank run is likely to spread to other regional banks in the US. Fears are crowded now, and investors rush to safe-haven assets such as gold and US Treasuries.
Rate hike pace could slow down or even pause. The SVB failure is attributable to the aggressive rate hikes throughout 2022, which results in the plunge in US Treasuries (UST) and other government-backed fixed-income securities like mortgage-back securities. US banks have hugh amounts of unrealised losses from the these holdings as they purchased when interest rates were near zero (fixed-income prices at high). If the Fed fund terminal rate continues to rise, the floating losses will widen further for banks. Banks either raise more capital or sell UST and MBS at losses. In a nut shell, regional banks are facing a liquidity crunch once withdrawals of deposits accelerate. The crisis could force the Fed to slower and smaller rate hikes or even pause. The probability of 50bps rate hike in the upcoming FOMC meeting this month drops from previous 80% to current 30% after the SVB fails. The dollar index fell from near 105.9 to 104.6 as of Friday.
Better outlook for gold price in 2023. There are several factors impact gold prices, and the key ones are the trend of the US dollars and global geopolitical risk. The broad market has expected that US dollars peaked last year as inflation has been on a downswing. Even though recent macro data such as January CPI and core PCE price were higher than expected, both showed overall prices were declining. The US job market starts showing some weaknesses as unemployment rate rose to 3.6% in February. The market expects Fed to cut rates by the end of after the peak in 3Q23. On the other hand, geopolitical tensions remain high and probably escalate anytime as China-US confrontations are more frequent. Gold is the good old safe haven.

Gold Price and Dollar Index Trend

(Source: Bloomberg)

Positive FY22 result guidance. The company expected to realise a net profit attributable to the company of RMB1bn to RMB1.3bn in FY22 compared to a net loss in FY21.
The updated market consensus of the EPS growth in FY23/24 is 92%/37.5%, respectively, which translates to 28.64x/20.83x forward PE. Current PER is 47.41x. Bloomberg consensus average 12-month target price is HK$15.8.

Shandong Gold VS Gold price

(Source: Bloomberg)

(Source: Bloomberg)

SenseTime Group Inc. (20 HK): An alternative AI-themed choice

RE-ITERATE BUY Entry – 2.70 Target – 2.94 Stop Loss – 2.58
SenseTime Group Inc is a China-based company mainly engaged in the research and development and application of artificial intelligence (AI) software. The Company has self-developed AI infrastructure SenseCore, which can reduce the price of AI production factors and realize large-scale AI innovation and implementation. The Company’s businesses cover four major sectors, including smart business, smart city, smart life, and smart auto. It focuses on AI original technology research and has full-stack AI capabilities, including perception intelligence, decision intelligence, smart content generation, smart content enhancement, and key capabilities such as AI chips, AI sensors, and AI computing infrastructure.
Focus on technological self-reliance. China recently announced at the two sessions that China will be deepening its control over the technology sector, pushing China towards, technological self-reliance. China’s Communist Party unveiled a broad overhaul strengthening its role in managing finance, social affairs and technological development, as part of leader Xi Jinping’s efforts to entrench his brand of top-down rule. China will continue to expand its 5G network while further promoting the research and development of 6G as well as other cutting-edge technology. This includes humanoid robots, metaverse, quantum technology and more, so as to better support the implementation of a modern industrial system.
Rise of Artificial Intelligence in China. China’s 14th Five-Year Plan and Vision 2030 both place a strong focus on the development of the digital economy, seeing this sector as a source of tremendous untapped innovative power and space for growth. In the next few years, the construction of this new AI infrastructure is set to become one of the important pillars of the development of the digital economy and a focus of investment by local governments in China, significantly contributing to regional economic development.
Catching up with ChatGPT. Recently, the company unveiled an open-source AI model, Intern 2.5. Boasting 3 billion parameters, Intern 2.5 is the largest and most accurate on ImageNet among the world’s open-source models, and it is the only model in the object detection benchmark dataset COCO that exceeds 65.0 mAP. The ImageNet project is a large visual database designed for use in visual object recognition software research. The model’s cross-modal open-task processing ability can provide efficient and accurate perception and understanding support for general scenarios such as autonomous driving and robots.
1H22 earnings. Revenue fell by 14.3% YoY to RMB1,4bn, compared to RMB1.7bn in 1H21. Gross profit fell by 22.5% YoY to RMB934.0mn, compared to RMB1.3bn in 1H21. Net loss attributable to shareholders of the company was RMB3.2bn, compared to RMB3.7bn in 1H21.
The updated market consensus of the EPS growth in FY23/24 is 26.67%/25.79% YoY respectively. Bloomberg consensus average 12-month target price is HK$3.13.

(Source: Bloomberg)

Barrick Gold Corporation (GOLD US): Safe haven

BUY Entry – 17.80 Target – 20.0 Stop Loss – 16.7
Barrick Gold Corporation engages in the exploration, mine development, production, and sale of gold and copper properties. It has ownership interests in producing gold mines that are located in Argentina, Canada, Côte d’Ivoire, the Democratic Republic of Congo, the Dominican Republic, Mali, Tanzania, and the United States.
Financial crisis 2.0. On 10 March 2023, a black swan event occurred in the US banking sector. The failure of Silicon Valley Bank (SVB) marked the second-largest bank failure in US history. The US Federal Deposit Insurance Corporation (FDIC) seized the assets of Silicon Valley Bank on Friday. The bank had $209bn in assets and $175.4bn in deposits at the time of failure, the FDIC said in a statement. The bank run is likely to spread to other regional banks in the US. Fears are crowded now, and investors rush to safe-haven assets such as gold and US Treasuries.
Rate hike pace could slow down or even pause. The SVB failure is attributable to the aggressive rate hikes throughout 2022, which results in the plunge in US Treasuries (UST) and other government-backed fixed-income securities like mortgage-back securities. US banks have huge amounts of unrealised losses from these holdings as they purchased when interest rates were near zero (fixed-income prices at high). If the Fed fund terminal rate continues to rise, the floating losses will widen further for banks. Banks either raise more capital or sell UST and MBS at losses. In a nutshell, regional banks are facing a liquidity crunch once withdrawals of deposits accelerate. The crisis could force the Fed to slower and smaller rate hikes or even pause.

The Fed recently hiked rates by 25 basis points. The market expects the Fed to stop raising interest rates and begin to cut rates in the second half of 2023.

Better outlook for gold price in 2023. There are several factors impact gold prices, and the key ones are the trend of the US dollars and global geopolitical risk. The broad market has expected that US dollars peaked last year as inflation has been on a downswing. Even though recent macro data such as January CPI and core PCE prices were higher than expected, both showed overall prices were declining. The US job market started showing some weaknesses as unemployment rate rose to 3.6% in February. The market expects Fed to cut rates by the end of after the peak in 3Q23. On the other hand, geopolitical tensions remain high and probably escalate anytime as China-US confrontations are more frequent. Gold is the good old safe haven.

Gold Price and Dollar Index Trend

(Source: Bloomberg)

Mixed 4Q23 results. Revenue dropped by 16.3% YoY to US$2.77bn, missing estimates by US$20mn. Non-GAAP net loss per share was US$0.13. 4Q22 gold and copper production was 1.12mn oz and 96mn pounds, respectively. Gold and copper prices averaged at US$1,728/oz and US$3.81/pound respectively.
US$750mn share buyback. The company authorized a share buyback program of up to US$750mn in 2023, compared to US$1.6bn of dividends and buybacks in 2022.
The updated market consensus of the EPS growth in FY23/24 is 3.7%/24.7%, respectively, which translates to 23.1x/18.6x forward PE. Current PER is 21.2x. Bloomberg consensus average 12-month target price is US$21.13.

Barrick Gold VS Gold price

(Source: Bloomberg)

(Source: Bloomberg)

Microsoft Corporation (MSFT US): Revolutionary singularity

RE-ITERATE BUY Entry – 275 Target – 295 Stop Loss – 265
Microsoft Corporation develops, licenses, and supports software, services, devices, and solutions worldwide. The company operates in three segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.
GPT-4 is the game changer. Recently, the current most popular artificial intelligence application ChatGPT had another significant upgrade from previous 3.5 to 4.0. GPT-4 is “multimodal”, meaning that it can generate content from both image and text prompts. GPT-3.5 is limited to about 3,000-word responses, while GPT-4 can generate responses of more than 25,000 words. GPT-4 can also understand and talke about pictures. According the GPT-4 Technical Report, GPT-4 is even able to score a 5 on several AP exams and ace a “simulated” bar exam, scoring among the top 10% of test takers on the exam. Microsoft had integrated ChatGPT to Bing chat and Azure previously. The updated development was that it also integrated GPT-4 into its Office Suites. Microsoft is expected to increase revenue by raising prices for the extra embedded packages.
Banks’ losses could be good for the technology sector’s gains. The recent sell-off in the equity market, especially the finance sector, not only eased previous bigger rate hike expectations in the next week’s FOMC meeting but also bring forward the beginning of the rate cut cycle to 3Q23. Rate cut expectations are good for the technology sector.

Fed fund rate expectations

(Source: Bloomberg)

2Q23 earnings review. Revenue slight grew by 1.9% YoY to US$52.7bn, missing estimates by US$450mn. Non-GAAP EPS arrived at US$2.32, beating estimates by US$0.01. The company expected double-digit growth in revenue this year.
The updated market consensus of the EPS growth in FY23/24 is 1.6%/15.0%, respectively, which translates to 28.4x/24.7x forward PE. Current PER is 29.0x. Bloomberg consensus average 12-month target price is US$290.4.