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5 Singapore stocks on the move

SG, Stocks

Written by:

Alex Yeo

The Ukraine-Russian conflict narrative has impacted the global supply chain and caused price spikes to many commodities while the COVID-19 pandemic continues to impact certain countries such as China as it continues on its zero-Covid policy course. These policies have led to manufacturing closures, affecting countries globally and China has thus seen its PMI index contract. Consequently, inflation levels have not decreased and to make things worse, countries across the world are forecasting lower GDP growth.

Amidst the tough backdrop, we have identified 5 stocks listed in Singapore that are on the move, either with strong 2022 prospects or are making good progress with their growth plans for the future. Accordingly, these companies could see their share price reflect these plans positively in the months to come.

1) Singapore Telecommunications Limited (Singtel) (SGX:Z74)

Singtel has been busy lately, they have carried out a few acquisitions and also did a partial stake disposal in Airtel Africa as part of their capital recycling strategy. As Singtel’s share price has fallen significantly, this may mean that Singtel has the potential to finally recover as the valuation can be cheap and attractive to value investors.

Here’re 3 key events that could aid its recovery:

a) Acquisition of Axicom

On 1 April 2022, Singtel’s associate Australia Tower Network(ATN) acquired Axicom, one of Australia’s leading providers of telecommunications tower infrastructure, for A$3.58 billion. Singtel’s share of the investment will be A$212 million.

Axicom owns and operates approximately 2,000 telecommunication sites located in metro and outer-metro locations across all eight states and territories and major cities in Australia. Singtel sees strong synergies between Axicom and ATN which would provide exceptional growth opportunities benefitting customers, employees, and the community in the long term.

b) Acquisition of ARQ Group (ARQ)

On 28 March 2022, Singtel’s wholly owned subsidiary, NCS announced its acquisition of digital services firm ARQ in Australia for A$290 million. The move brings to scale NCS in Australia, which now offers an end-to-end digital transformation value proposition for clients. Headquartered in Melbourne, with offices in Sydney and Brisbane, ARQ is a digital services company with expertise in cloud, digital, data and analytics solutions.

This investment is NCS’ fourth in Australia in the past 15 months as it expands its footprint in a market strategic to its regionalisation plans. NCS recently acquired Australia’s largest privately-owned IT services company, The Dialog Group (Dialog) following 2 previous investments: cloud consultancy Riley that specialises in Google cloud applications and a majority investment in cloud transformation specialist Eighty20 Solutions that has unique capabilities across Microsoft platforms.

c) Partial stake disposal in Airtel Africa

On 25 March 2022, Singtel monetised a 1.6% stake in Airtel Africa through a market placement, as part of its capital recycling strategy. It raised net proceeds of approximately S$150 million. Following this transaction, Singtel will continue to hold a 21.7% effective stake in Airtel Africa, comprising a 17.8% indirect stake through its regional associate Airtel and a 3.9% direct stake

In addition, 2022 is slated to be the year where Singapore’s digital banks are set to launch, the Grab-Singtel Digital Bank was one of two awardees of the full digital bank licenses, the other being awarded to Sea Limited. Grab has already started offering products such as buy now pay later(BNPL), business loans and cash advances as the expected date of launch draws closer.

Finally, Singtel intends to spend more than S$2 billion in redeveloping its headquarters and plans to divest a portion of the asset to a developer as part of its redevelopment plan. This will better place the company for the future where it positions itself to capture 5G growth initiatives and regional expansion of its data centre business.

2) Keppel Corporation (SGX:BN4)

Keppel Corporation has similarly been executing its capital recycling strategy to acquire assets that will play a part in its longer term growth and to dispose non-core assets. Keppel previously set a monetisation target of S$3-5 billion in the three years commencing September 2020 as part of Keppel’s Vision 2030 as part of a larger pool of assets with a total carrying value of S$17.5 billion that can potentially be monetised over time and channelled towards growth initiatives.

a) Acquisition of Cleantech solar assets

Cleantech is a leading solar energy platform focused on the commercial and industrial (C&I) segment. The company has a total capacity of over 600 MW across the various stages of operations, construction, and development, with its assets located across India and six countries in Southeast Asia (Thailand, Malaysia, Indonesia, Cambodia, Singapore and Vietnam). In addition, Cleantech is targeting to achieve a cumulative generation capacity of 3 GW over the next 5 years.

Keppel, together with its funds have acquired an additional 50% stake in Cleantech’s solar assets, bringing the total stake to 75%. The 50% stake was at a cost of US$265 million.

b) Disposal of Keppel Logistics

Keppel Telecommunications & Transportation Limited (Keppel T&T) has divested its entire stake in Keppel Logistics to Geodis International SAS for a consideration of approximately S$80 million, valuing Keppel Logistics at enterprise value of $150 million. This transaction includes Keppel Logistics’ businesses in Singapore, Malaysia and Australia, as well as UrbanFox.

The divestment of Keppel Logistics, a non-core business is in line with the Keppel Group’s Vision 2030 plans to simplify and focus its business as well as enhance its earnings. Following the divestment, Keppel T&T’s priority would be to scale up in its focus areas of sustainable data centre solutions and subsea cable systems.

c) Keppel and Sembcorp Marine Merger

After losing out on the Singapore Press Holdings Limited acquisition to the Cuscaden consortium which includes Mapletree as one of the investors, Keppel has now turned its focus to the next big transaction.

After about nine months since it first announced talks on potentially combining Keppel and Sembcorp Marine, Keppel provided a market update on 31 March 2022 noting significant progress has been made on advancing the proposed merger. The merger is in response to the dramatic changes in the global offshore & marine engineering and energy sectors in recent years with the objective to create a stronger combined entity, leveraging respective strengths to realise synergies and deliver sustainable value over the long term for shareholders.

Both parties are committed to continue with exclusive negotiations and work towards a definitive agreement by 30 April 2022.

Keppel also updated that significant progress has been made on advancing the sale of Keppel O&M’s legacy rigs and associated receivables to a separate company that would be majority owned by external investors. This is an important step towards a successful merger as the merger and sale of Keppel O&M’s legacy assets are inter-conditional and are being pursued concurrently.

3) Sats Ltd (SGX:S58)

There are many industries benefiting from the relaxation of travel restrictions globally and in Singapore, such as Airlines, Aviation service providers and Hotels. SATS being a major airport ground handling and aviation food catering business is one of the companies that is poised to benefit from the expected increase in travel.

Despite facing multiple struggles during the pandemic, SATS continued to grow its operations and the company could see its efforts bear fruits in the coming months. During the pandemic, SATS established itself as an essential service by keeping supply chains open and supporting efforts to protect public health. It enhanced its cargo capabilities to meet demand for temperature-sensitive supplies and e-commerce. The food business also continued to grow in non-travel related market segments and it expanded its security service business in Singapore.

SATS has been investing in large-scale kitchens and food technologies to increase productivity and reduce wastage.

a) Consolidation of existing catering businesses in Singapore

Sats will spend about S$150 million to develop a food hub for its existing institutional catering businesses after the company accepted an offer from JTC Corporation for a property with a 30-year lease term within the Jurong Innovation District to operate the hub. The cost of the total land rent for the 30 year period of the lease is estimated at S$42.6 million..

Sats now runs its institutional catering businesses at several JTC-leased premises and will consolidate these operations at the new hub. Advanced food manufacturing with automation and Internet of Things capabilities will be deployed for operational efficiency.

b) Expansion of food production businesses

It also acquired an 85% stake in Food City Company Limited, a Thai company for S$21 million. This will allow Sats to control a food production facility in Pathum thani, a province north of Bangkok.  Set up in 2016, the facility covers a land area of 30,000 square metres, and benefits from the well-established food ecosystem in Thailand. Following the acquisition, the facility will be configured to produce 90,000 ready-to-eat meals per day.  Upon completion of the Food City transaction, the company will own interests in 32 meal production facilities across Asia.

c) Expansion of cargo handling network

Sats also continued to expand its cargo handling network, such as by the acquisition of Asia Airfreight Terminal in Hong Kong for S$58.5 million, increasing its stake from 49% to 65.4%.

4) ComfortDelgro Corporation Ltd (SGX:C52)

ComfortDelgro (CDG) is another stock that will benefit from the relaxation of COVID-19 movement restriction measures as global recovery takes root. The company is cautiously optimistic for 2022 with revenue from public transport services expected to improve as rail ridership in Singapore, bus charter in Australia and coach services in the UK continue to recover with the relaxation of COVID-19 restrictions. CDG’s New Zealand Rail joint-venture Auckland One Rail also took over operations of the Auckland metro from January 2022.   

Singapore’s taxi revenues are expected to improve with the lowering of COVID-19 rental discounts to taxi drivers as driver earnings are expected to improve from the easing of restrictions and resumption of international travel.  Other business segments are expected to remain stable, with improved activity levels and earnings offset by anticipated inflation and higher fuel and electricity costs.   

The company has seen gradual earnings per share recovery and shareholders can look forward to higher dividends should CDG continues on its recovery track.

SGD¢/shareEarnings per shareDividend
FY216.004.20
FY202.811.43
FY1912.249.79
FY1814.0110.50
FY1713.9510.40
FY1614.7210.30
FY1514.079.00
Source: Author’s compilation

This is the year where companies try to put the pandemic into its rear view, CDG is future-proofing itself with the establishment of a S$30 million Autonomous Vehicle Centre of Excellence (AV CoE) aimed at building up its capabilities in the operation and maintenance of such vehicles.  The AV CoE, which was set up through ComfortDelGro’s S$100 million venture capital fund, will focus on the research and development of AV-related capabilities over the next five years. It will enable the Group to develop a technology platform to support the delivery of mobility services using AVs, with a view of deploying them commercially.

Work has already started with a Memorandum of Understanding (MoU) signed with Mobileye, an Intel Company, a global leader in the development of vision technology for Advanced Driver Assistance Systems (ADAS) and autonomous driving.

Under the MoU, CDG will leverage Mobileye’s AV technology to build new skills in driverless operations, incident response processes, fleet management and maintenance. The AV CoE will also look into building a technology platform to manage AV operations that are scalable and transferable to CDG’s entities globally.

5) Yangzijiang Shipbuilding Holdings Ltd (SGX:BS6)

Yangzijiang did well in FY2021 and is looking to a strong 2022 with its sizeable order book. It reported strong financial performance, with total revenue increasing by 13% yoy to RMB16.8 billion due to higher shipbuilding and shipping activities. Net profits in FY2021 was higher than previous years as the company saw a YoY increase of 47% to RMB 3.7 billion.

The order book currently very sizeable, with an outstanding order book of USD8.5 billion for 157 vessels as at 31 December 2021. With this strong financial performance and strong order book, the company proposed a final dividend of S$0.05 per share for FY2021 (FY2020: S$0.045 per share).

The shipbuilder is also positioning itself for the future with a US$1.6 billion contract win in July 2021 to build 10 dual-fuel 7,000TEU containerships and 2 50,000DWT MR tankers. There is also a letter of intent for another 5 containership.

These dual-fuel newbuild orders will be fitted with Type ‘B’ LNG Fuel Tank, and Yangzijiang had participated in the design of the LNG fuel storage, supply system and LNG tanks as part of its research and development (‘R&D’) efforts. The contract wins are first-of-its kind for Yangzijiang and is a recognition in the capabilities and technology towards the LNG tanks jointly designed by Yangzijiang and Mitsui.

It is also in the process of a proposed a spin-off its investment business through a separate listing on SGX Mainboard, shareholders to receive a dividend-in-specie on one-to-one basis following regulatory approvals. Analysts expect the company to be re-rated higher after the spin off.

Closing statement

It is clear that companies should not merely try to survive during the pandemic but also look forward and future proof its operations. Companies such as Singtel and Keppel Corp are either pursuing strategic acquisitions or mergers so as to maintain its relevance in a rapidly evolving world.

Sats and ComfortDelgro were significantly affected by the pandemic and are poised to have a better year ahead with the reopening, these companies have also invested carefully in areas which they believe are able to provide returns to the business.

Yangzijiang is one company that did well despite the pessimistic global environment as it recorded a strong FY2021 financial performance and is likely to continue to do so with its strong orderbook. It is also rewarding its shareholders with higher dividends and a dividend in specie distribution of shares by spinning off its investment segment.

If you’re looking to pick up some undervalued stocks today, I hope this article would serve as a good starting point for your research.

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