Singapore’s Electronics cluster (27.4% of total manufacturing activity) demonstrates strong momentum with its 13th consecutive month of YoY output growth.

SGX’s IT Sector is an outperformer in the YTD with total returns of 33.3%, above the STI’s +11.1% and the MSCI Asia ex-Japan IT Index’s +18.4%.

Strong earnings outlook likely the key driver of IT Sector’s outperformance. Consensus expects 10 largest IT stocks* to grow earnings by 20% in 2017.

Electronics Manufacturing Output Momentum Remains Strong

Singapore’s Electronics cluster has started 2017 on a bright note, continuing its strong manufacturing output momentum. Data from Economic Development Board (EDB) showed that Singapore’s Electronics cluster’s March manufacturing output expanded by 37.7% YoY (driven by Semiconductor cluster’s +54.6% YoY). This performance resonates with robust global semiconductor sales in March, which grew 18.1% YoY (largest increase since October 2010) – click here.

The strong momentum contributed to Singapore’s overall manufacturing output in March (+10.2% YoY), beating economists’ expectations of  +7.1% (according to a Reuters poll). As a reminder, the Electronics cluster is a major contributor of Singapore’s total manufacturing activity with a 27.4% weightage.

Singapore Electronics cluster sees 13th consecutive month of YoY output growth, with Semiconductor sub-segment experiencing even more robust expansion rates. 

chart 4

Source: Economic Development Board (EDB) Singapore

Singapore IT Sector’s YTD total returns (+33.3%) Outperformed Regional Benchmark (+18.4%)

As the industry continues to see positive data-points, it is not surprising that the Information Technology (IT) Sector was the top-performing Sector in the year-to-date (YTD). Specifically, SGX’s IT Sector generated a capitalisation weighted total return of 4.9% in April, bringing YTD gains to 33.3% (click here for more details). This is higher than the Straits Times Index’s (STI) total return of 11.1% and the regional benchmark’s (MSCI AC Asia ex-Japan IT Index) total return of 18.4% (or +22.6% in USD terms) over the same period.

10 Largest IT Stocks* to Grow Earnings 20% in 2017 and 12% in 2018

Post the YTD rally, the 10 largest IT stocks (which have sell-side analyst coverage) are trading at an average trailing price-to-earnings (P/E) ratio of 17.6x. However, on a forward (full-year 2017) basis, the average P/E is much lower at 14.6x. These 10 stocks have returned 53.4% in the YTD thus far.

The lower forward P/E can be attributed to the growth expectations of these companies estimated by sell-side analysts. In fact, by using a price/earnings to growth (PEG) ratio, seven out of these 10 companies are trading at below 1.0x. As a general rule of thumb, a PEG ratio of 1.0x indicates that a stock is fairly valued when compared to the expected earnings growth. A PEG ratio lower than 1.0x may also indicate that the stock is undervalued and vice versa.

According to data from Bloomberg, consensus expects these 10 companies to grow EPS by a median of 19.9% in 2017 and another 11.7% in 2018. The strong earnings outlook is likely one of the factors driving the IT Sector’s return in the YTD.

The 10 largest IT stocks (which have sell-side analyst coverage) are listed below, sorted by market capitalisation. Click on each stock to visit its profile page on SGX StockFacts.

Name SGX Code Market Cap S$M Price Last Close S$ P/E (x) P/E: Forward (x)** PEG (x)*** 2017 Consensus EPS growth % 2018 Consensus EPS growth %
Venture Corp V03 2,283 12.83 18.4 16.5 0.820 20.1 9.1
Silverlake Axis 5CP 1,460 0.54 8.0 18.6 -1.089 -17.1 -34.5
iFAST Corp AIY 303 0.775 32.7 27.7 0.742 37.3 14.3
UMS Hldgs 558 264 0.88 16.7 14.0 0.705 19.8 4.8
Nera Telecom. N01 230 0.39 31.8 16.3 -0.186 -87.6 50.0
CSE Global 544 214 0.505 12.3 11.5 1.617 7.1 9.1
Valuetronics Hldgs BN2 174 0.84 12.6 12.7 0.806 15.8 9.1
TeleChoice Intl T41 118 0.255 15.2 11.6 0.384 30.2 18.2
Serial System S69 112 0.177 8.2 8.4 0.027 311.8 19.0
AEM Hldgs AWX 22 2.62 19.9 9.0 0.029 309.2 17.2
Average 17.6 14.6
Median 19.9 11.7

Source: SGX, Bloomberg & SGX StockFacts (data as of 9 May 2017)

Forward P/E based on full-year 2017 EPS

Name SGX Code Total Return YTD % Total Return 1 Yr % Total Return 3 Yr % Dvd Ind Yld % GICS® Sub-Industry Name
Venture Corp V03 29.9 55.5 100.1 3.8 Electronic Manufacturing Services
Silverlake Axis 5CP 3.1 3.1 -17.3 5.2 Application Software
iFAST Corp AIY -6.4 -30.8 N/A 3.6 Internet Software & Services
UMS Hldgs 558 49.0 55.3 60.0 5.7 Semiconductor Equipment
Nera Telecom. N01 -1.3 -16.6 -17.3 2.6 Communications Equipment
CSE Global 544 14.3 28.7 -1.4 5.6 IT Consulting & Other Services
Valuetronics Hldgs BN2 61.5 95.7 213.4 4.3 Electronic Manufacturing Services
TeleChoice Intl T41 2.1 4.1 27.0 6.3 Technology Distributors
Serial System S69 24.9 44.9 47.2 1.9 Technology Distributors
AEM Hldgs AWX 357.0 709.6 419.0 0.5 Semiconductor Equipment
Average 53.4 95.0 92.3 3.9

Source: SGX, Bloomberg & SGX StockFacts (data as of 9 May 2017)

*Based on the largest IT stocks with analyst coverage

**Forward P/E based on full-year 2017 EPS

***Calculated by dividing “P/E: Forward” over “2017 Consensus EPS growth”

IT Stocks Comprises 10% of SGX’s Securities Market 

There are 76 stocks listed on the SGX which are classified under the IT sector (based on MSCI GICS® Categorisations), accounting for approximately 10% of SGX’s securities market. These 76 stocks have a combined market capitalisation of more than S$12 billion. The sector comprises companies that offer software and IT services, manufacturers and distributors of technology hardware and equipment such as communications equipment, cellular phones, computers & peripherals, electronic equipment as well as related instruments and semiconductors.

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