- This week MTI reported Singapore’s economy grew at a solid rate of 3.6% in 2017. This was led by a 10.1% expansion in the manufacturing sector, specifically in the electronics and precision engineering clusters.
- The week has also seen multiple earnings reports, many of which were FY17 Financial Reports that provided insights on how SGX-listed stocks benefited from the growth momentum of manufacturing and trade-related Sectors in 2017.
- SGX-listed stocks also benefitted from signs of stabilisation in Singapore’s residential property market in 2H17 while construction and utility stocks also noted alignment with infrastructure initiatives across the City-State.
Singapore Amongst Strongest Advanced Economies in 2017
This week the Ministry of Trade and Industry (MTI) announced the Singapore economy grew by 3.6% in 2017.
This positioned Singapore as one of the strongest Advanced Economies of 2017. Based on the latest IMF averages, an Advanced Economy growing at 3.6% in 2017 was akin to an Emerging Market and Developing Economy growing at 7.4%.
Singapore’s 3.6% growth rate for 2017 was led by a 10.1% expansion in the manufacturing sector, specifically the electronics and precision engineering clusters. As noted by Monetary Authority of Singapore (“MAS”) Managing Director Ravi Menon in January, products ranging from smartphones to automobiles and home electronics have become increasingly chip-intensive.
The 2017 year saw strongest pace of global expansion since 2010 and China saw the first upturn in annual economic growth in eight years. For 2018, the MTI expects Singapore’s GDP growth to moderate from 2017’s growth but remain firm, and slightly above the mid-range of the forecast of 1.5% to 3.5%.
Recent Earnings Reports Highlight Growth Impacts
The week has also seen a number of earnings reports, many of which have been full year financial reports which have provided insights on how SGX-listed stocks have benefitted from the momentum in manufacturing trade-related Sectors in 2017. In particular, cyclical upswings in consumer-electronics, manufacturing and real estate were referenced by a number of businesses and so-called proxy stocks.
As illustrated in January, the strongest Sectors of 2017 represented cyclical Sectors.
2017 Indicative Market Cap-weighted Total Returns of 12 GICS® Sectors & Key Industries (%)
*Note Delong Holdings 814% gain in 2017 accounted for more than half of the gains for the Materials Sector (or 43% of the 83%) in 2017, implying the remainder of the Materials Sector gained 40%. GICS ® Sector performance is weighed to market cap at the end of each period, is in SGD and includes reinvested dividends. Source: SGX StockFacts & Bloomberg
As discussed yesterday (click here) all three banks reported net profit growth for FY17 and strong earnings growth in 4QFY17.
With higher worldwide semiconductor sales in 2017, in addition to higher end demand for consumer electronics, both upstream and downstream technology companies benefitted from the global re-rating in the Sector in the earlier part of 2017.
Avi-Tech Electronics reported its revenue for 1H18 (ending 31 Dec) was up 19.5% YoY. The company expressed confidence on the continued global trends in the automotive semiconductor, infocommunications, cloud computing and data centre spaces. Avi-Tech which provides burn-in services, manufacturing and PCBA services and engineering services noted it expects the automotive semiconductor market to reach US$48.78 billion by 2022 with CAGR projected at 5.8%.
Contract manufacturer and Apple Supplier Hi-P international also noted that higher sales volume in 2017 drove the groups 9.3% YoY FY17 revenue increase. Hi-P International cited recent International Data Corporation (“IDC”) reports that it
- Expects the worldwide smartphone market reached a total of 1.49 billion units shipped in 2017, up 1.2% from the 1.47 billion units shipped in 2016.
- From there, worldwide smartphone shipments are expected to reach 1.71 billion units in 2021, resulting in a CAGR of 3.0%.
- The IDC expects worldwide spending on the Internet of Things (“IoT”) to reach $772.5 billion in 2018, an increase of 14.6% over the $674.0 billion that will be spent in 2017.
Soon Lian Holdings noted its sales to customers in the precision engineering industry increased by S$2.0 million YoY in FY17 , due to increased demand from customers in the precision engineering segment. Chuan Hup Holdings also stated that its increase in profit contribution from electronics manufacturing services was due to higher sales volume.
Demand for Cyber Security solutions and managed services also played a role in driving the Enterprise Fixed business revenue for StarHub, which accounted for 18% of its FY17 revenue, growing by 9% YoY.
SIA’s Cargo Unit reported 9MFY17/18 (ending 31 Dec) operating profit of S$120 million, which was a significant $112 million YoY increase. SIA Cargo noted that its revenue grew $210 million as freight carriage rose 5.5%, and cargo yield improved 8.9% on the back of stronger market conditions. SATS noted that its 9MFY17/18 (ending 31 Dec) share of after-tax profits from associates/joint ventures increased 29.7% to $47.2 million with higher contributions from both Food Solutions and Gateway Services.
SBS Transit reported that revenue from Public Transport Services in 2017 was 9.8% higher than 2016 due mainly to a full year contribution of revenue under the Bus Contracting Model (BCM) and higher ridership from rail services with the commencement of Downtown Line (DTL) 3 on 21 October 2017, offset by lower average rail fare from the fare reduction effective 30 December 2016 and lower other operating income.
OKP Holdings is a home-grown infrastructure and civil engineering company which reported its FY17 Group revenue rose by 5.6% to S$117.3 million due to higher contribution from maintenance segment. This was attributed to a higher percentage of revenue recognised from a number of both existing and newly-awarded maintenance projects which progressed to a more active phase.
Ley Choon noted that from December 2017 to January 2018, the Group had announced three secured contracts worth approximately S$36.0 million for the replacement of water mains for network renewal and for supplying and laying of NEWater mains. Together with earlier contracts secured, the Group’s unfulfilled order books based on secured contracts stood at approximately S$155.0 million.
Koh Brothers also noted its Group’s order book at S$762.7 million, recently benefitted from contract wins including:
- A contract relating to the Deep Tunnel Sewerage System (“DTSS”) Phase 2 project secured by its 35%-owned joint venture, POKB JV. Set up together with the Group’s joint partner, Penta-Ocean Construction Co., Ltd, POKB JV will be responsible for the design and construction of the tunnels, shafts and other features required under Contract T-08 of the DTSS Phase 2 project.
- A contract relating to Circle Line 6 (announced Sep 2017), in which the Group will carry out all civil, structural, architectural, electrical & mechanical and system works relating to the construction of cut-and-cover tunnels and other structures from the east of the planned Prince Edward Station to the existing Marina Bay Station.
Koh Brothers cited a recent Building and Construction Authority (“BCA”) report that projects Construction Sector demand to reach between S$26 billion and S$31 billion in 2018, with 60% of the projects to be derived from the public sector. These projects include additional major contracts for infrastructure projects like the North-South Corridor, new MRT works and DTSS Phase 2 as well as the remaining package for Runway 3 by Changi Airport Group. Ley Choon added that BCA also expects the public sector construction demand to contribute $16.0 billion to $20.0 billion per annum from 2019 to 2022.
Metech International also noted opening up of new business opportunities with Government’s plan to take the Extended Producer Responsibility approach to improve the recycling rates of E-Waste in Singapore. The company noted the approach places the onus on producers of electronic goods to make sure they are properly recycled or disposed of, changing the landscape of E-Waste recycling in Singapore.
One of Asia’s largest real estate companies, CapitaLand reported that the Group recorded higher FY17 sales value in Singapore at S$1,479 million from 407 residential units sold in FY17 compared to S$1,415 million from 571 units in FY16. The Group expects Singapore’s residential property market sentiment to remain positive, underpinned by increased transaction volumes and a recovery in home prices.
Aside from growth in its EMS business Chuan Hup Holdings reported higher margins were achieved by sales of Concerto apartment units in 2QFY18 (ending 31 Dec) as compared to margins derived from sales of Unison on Tenth apartment units in 2QFY17.
Bukit Sembawang Estates cited URA’s report that the number of new private residential units sold in 2017
Grew 33% YoY, noting the Group is closely monitoring the changing dynamics of the residential property market for timely launching of new residential project for sale.
In the Industrial Real Estate Sector, Boustead Projects Managing Director noted that although the Group had seen an improvement in construction activities in the industrial real estate sector in Singapore, competition is expected to remain intense and margins challenging. The Group noted its financially-sound position would allow it to continue making further investments in smart and eco-sustainable building capabilities, cost and productivity improvements, as well as strategic partnerships and platforms in Singapore and regionally.
Hatten Land, a leading property developers in Malaysia specialising in integrated residential, hotel and commercial developments, noted it believes development demand in Malaysia will be robust, driven by new townships and the momentum of China’s Belt and Road Initiative.
Please note the above companies are not a full list of the SGX-listed Mainboard and Catalist stocks that reported earnings this week.