Industrial, property stocks breathing life back into Singapore stock market

SINGAPORE — After months of lacklustre performance, the Singapore stock market is roaring back to life.

So far this year, equity funds have received some US$2 billion (S$2.72 billion) in 10 straight months of inflows, the most annually since 2007, according to data from asset allocation tracking company EPFR Global.

On Friday (Nov 10), the Straits Times Index (STI) posted a 29-month high of 3429.21 points, just days after it hit two-year record levels. Analysts expect the STI to breach the 3,500-level early next year barring external shocks.

The STI tracks the performance of the top 30 companies based on market capitalisation listed on the Singapore Exchange.

The index has risen by more than 17 per cent since the start of this year, thanks to the performances of Real Estate Investment Trusts (REITs), as well as banking counters which had been expected to do well this year in light of the higher interest rates environment and higher banks’ earnings.

Outperforming sectors, helped by the rosier global economic picture, have also contributed to the buoyant stock market. This list includes industrials, property and information technology. Apart from banking and finance, the top three best performing sectors on the STI consist of property and industrial stocks. The values of property and industrial counters have posted year-to-date growth of over 30 per cent and 16 per cent, respectively.

INDUSTRIAL STOCKS BUOYED BY GLOBAL ECONOMY

Industrial companies have been riding the tailwind of the global economic upswing this year, said CMC Markets analyst Margaret Yang. The rally in the oil prices has also been a factor.

IG market strategist Pan Jingyi noted that the cyclical stocks - such as industrials - on the STI have been beneficiaries of the improved economic environment. However, she added that while gains had been expected at the start of the year, the resilience of the global economy in the second half of the year has been a surprise.

Keppel Corp and Yangzijiang have seen a 30 per cent and a 100 per cent increase in share prices, respectively, in the year to date.

Keppel’s share price has risen from S$5.80 at the start of this year to S$7.53. The value of Yangzijiang’s stocks have doubled from S$0.82 a share to S$1.64 over the same period.

“The oil price rally this year helped to lift valuations for Asian’s shipbuilders including Yangzijiang,” said Ms Yang. “The market anticipates more offshore orders will be placed in 2018 as oil prices continue to climb towards US$60 (S$81.60) per barrel.”

As for Keppel, its ability to beat market’s expectations on earnings for two out of the last three quarters despite ongoing challenges in the offshore and marine sector gave confidence to investors, said Ms Yang. The company’s diversified business portfolio - property, investment, infrastructure, offshore and marine – has also helped it to overcome difficulties in the oil and gas sector, she added.

Overall, for the sector, the analysts said that earnings have since improved compared to a year ago, and the market remains optimistic about economic growth and corporate earnings next year. However, the share price movements next year would depend on individual company’s performances, they added.

PROPERTY COUNTERS: ‘WORST IS OVER’

While property stocks were set to do well this year in line with the economic conditions, their performance was better than expected, said Ms Pan.

KGI Securities (Singapore)’s head of research Joel Ng pointed to the improved property market and better macro-economic prospects. The projection that the Singapore economy will grow at the higher end of the 2 to 3 per cent forcast range certainly boosted sentiments, he said.

Analysts also cited the easing of property cooling measures earlier this year as a factor. In March, the Government announced that the seller’s stamp duty would be lowered by four percentage points for each tier, and the holding period shortened, among other measures.

Shares of City Developments for example, were priced at S$12.20 each as of Friday, a 47-per-cent increase from S$8.31 on Jan 3.

“Market participants probably think that the worst for the property market is finally over. Besides Singapore, the property boom in China, Hong Kong and other South East Asian countries are also positive contributors to multi-national developers’ earnings,” said Ms Yang.

However, Mr Ng advised investors to be selective on property counters in the months ahead. “We believe most of the positive catalyst has been probably priced in,” he said.

THE OUTLIERS

Apart from entire sectors setting the pace on the stock market, some companies have seen their valuations soar in 2017 so far, outpacing their peers in the same industries. Examples include mm2, Venture Corp and Singtel.

The pickup in consumer discretionary stocks since the start of the year is a positive trend for the entertainment industry, making the likes of mm2 the ones to watch, said Ms Pan.

DBS analyst Ling Lee Keng said in a recent research note that she expects strong growth for mm2, supported by its core business and its UnUsUaL business unit. The company’s cinema business would also help build recurring income.

Ms Ling has set a target price of S$0.73 for mm2, which was valued at S$0.56 as of Friday. 
“Having a strong presence in the entire value chain of content creation and distribution further cements mm2’s status as the leader in the media/entertainment industry. With a much larger and stronger scale, especially with the expected completion of the Cathay cinema acquisition at end-November, mm2 can now enjoy the synergistic benefits from the entire value chain,” Ms Ling said.

Meanwhile, OCBC analyst Eugene Chua has called a “buy” on Venture Corp, increasing its fair valuation from S$20.33 to S$23. The company’s research and development would drive a sustainable rise in its margins, he said. Venture Corp’s share price on Friday closed at S$21.95.

“Venture Corp’s nine-month 2017 revenue grew 44.5 per cent year-on-year to S$2.92 billion driven by a diversified revenue base, continuing strong execution of customers’ programmes and deepening of collaborative partnership with strategic customers,” said Mr Chua.

Looking ahead, Mr Chua expects Venture Corp to post its its best results so far this year in the fourth quarter, based on its track record. This would provide further impetus for a higher share price, he added.

DBS analyst Sachin Mittal has given telco operator Singtel a “buy” call with a price target of S$4.30. The stock closed Friday’s trading at S$3.78. “Singtel is far ahead of its peers in digital transformation,” he said. The growth business segments (infocomms technology and digital), which currently make up around 25 per cent of Singtel’s revenue, may rise to an estimated 40 per cent of revenue in five years, Mr Mittal said.