SGX Market Updates

5 SGX Largest, Best-Yielding Technology Plays Average 6% Dividend Yield


PUBLISHED ON |

27 August 2019

  • The IT Sector was the best performing segment on SGX in 7M 2019, generating a total return of +29.8%. In July, top institutional net buy stocks were NetLink NBN Trust and AEM Holdings, with total inflows of S$32.5 million and S$12.7 million respectively.

  • The 5 largest IT stocks with the highest dividend indicated yields are: CSE (6.5%), Sunningdale (6.2%), Venture (6.1%), GP Industries (6.1%) and UMS (5.8%). They average an indicated yield of 6.1%, vs the benchmark STI’s yield of about 4%.

  • Nearly a year into the US-China trade dispute, global electronics manufacturers continue to grapple with uncertainty, as supply chains are remapped across the industry landscape. Selected players in the sector are still able to maintain growth, largely due to a diverse customer base and/or niche product offerings.




Between January and July 2019, Singapore’s Information Technology (IT) Sector was the best-performing segment, generating a total return of +29.8%. In July, however, it clocked a total return of +1.3%, but saw a net outflow of S$57.6 million. Top institutional net buy stocks for the IT sector in July were NetLink NBN Trust, with total inflows of S$32.5 million, and AEM Holdings, with total inflows of S$12.7 million. 


SGX Tech Sector YTD Returns

Source: Bloomberg



Impact of Trade Dispute on Singapore’s Electronics Cluster

Nearly a year into the US-China trade spat, global electronics manufacturers continue to grapple with uncertainty, as supply chains are remapped across the industry landscape amidst rising procurement costs, fractured partnerships and factory relocations.

US President Donald Trump said on Monday at the G7 summit in Biarritz, France that he was optimistic about the prospects for a trade deal with Beijing, while Chinese Vice Premier Liu He, who has been leading the talks with Washington, said China was willing to resolve the trade dispute through "calm" negotiations and opposed any increase in trade tensions. The US-China trade dispute worsened last Friday with both sides imposing more tariffs on each other's exports – Trump announced an additional duty on some US$550 billion of targeted Chinese goods, hours after China unveiled retaliatory tariffs on US$75 billion worth of US goods.

The Electronics Sector’s Purchasing Managers’ Index (PMI) reading for July – released earlier this month – declined for the ninth straight month to 49.3, below the 50-point mark that would indicate expansion. On a month-on-month basis, the index edged 0.1 point higher from June. The Singapore Institute of Purchasing and Materials Management, which compiles the overall Singapore Manufacturing PMI noted that global trade uncertainties have disrupted supply chains.

Despite slower growth in the domestic economy, investments into the city-state appear to be holding firm, according to the Ministry of Trade and Industry’s (MTI) Economic Survey of Singapore released last week. Singapore attracted almost S$8.1 billion in fixed asset investment (FAI) commitments in the first six months of 2019, with this figure already meeting the Economic Development Board’s (EDB) full-year forecast of S$8 billion to S$10 billion. During this period, manufacturing was the top source of investment commitments, raking in S$4.6 billion, with the electronics cluster accounting for nearly two-thirds of the FAI secured.

Singapore’s July industrial production also expanded by a surprise 3.6% on a MoM, seasonally adjusted (s/a) basis, suggesting that domestic growth may be stabilising. Excluding biomedical manufacturing, output jumped 9.4% MoM s/a, EDB data released yesterday showed.

Deputy Prime Minister Heng Swee Keat also struck an optimistic note in his speech at the opening of Micron Technology’s expanded fabrication facility earlier this month, noting that Singapore is well-positioned to meet rising long-term global demand for semiconductors. This is driven by increased use of chip components in products such as smartphones that will plug into upcoming 5G networks, wearables, artificial intelligence-related products and autonomous vehicles.

The semiconductor industry accounts for more than 7% of Singapore’s gross domestic product (GDP), and is one of the largest industries within the city-state’s manufacturing sector. Based on EDB estimates, the city-state accounts for 11% of the global market for semiconductors.

According to SEMI, global sales of semiconductor manufacturing equipment is projected to drop 18.4% to US$52.7 billion in 2019, before rebounding next year with an 11.6% jump to US$58.8 billion. The strength of memory spending and new projects in China are anticipated to propel the industry’s 2020 growth.



Largest, Best-Yielding IT Plays

The 20 largest IT stocks on SGX have a combined market capitalisation of about S$15 billion. They average a dividend indicated yield of 3.8% and a price-to-earnings ratio of 14.1x.

Among the 20, the 5 largest IT plays with the highest dividend indicated yields are: CSE Global (6.5%), Sunningdale Technology (6.2%), Venture Corp (6.1%), GP Industries (6.1%) and UMS Holdings (5.8%). The 5 average an indicated yield of 6.1%, which compares with the benchmark Straits Times Index’s (STI) yield of about 4%.
 

Name SGX
Code
Market
Cap
S$m
Dividend
Ind Yield
%
Total
Return
YTD
%
Total
Return
1 Yr
%
Total
Return
3 Yr
%
PE
(x)
VENTURE CORP V03 4,391 6.1 10.7 -15.5 80.6 11.0
NETLINK NBN TRUST CJLU 3,468 5.5 19.8 18.9 NA 44.6
TPV TECHNOLOGY * T18 1,501 0.6 232.4 359.7 172.8 18.5
SILVERLAKE AXIS 5CP 1,375 3.6 24.8 14.3 1.9 18.3
HI-P INTL H17 957 4.4 36.1 18.4 241.9 9.3
ELEC & ELTEK E16 357 2.8 16.8 1.9 94.3 13.4
UMS HLDGS 558 333 5.8 11.9 -21.0 55.3 8.7
AEM HLDGS AWX 311 3.6 42.1 41.5 1384.8 8.2
GP INDUSTRIES G20 288 6.1 -1.2 -13.4 16.5 9.3
VALUETRONICS HLDGS BN2 274 5.7 1.3 -11.4 51.8 7.7
SUNNINGDALE TECH BHQ 248 6.2 -6.4 -3.7 44.1 14.2
CHUAN HUP HLDGS C33 246 3.8 29.7 18.9 55.5 15.9
CREATIVE TECH C76 236 NA -19.3 -49.1 201.5 7.0
CSE GLOBAL 544 221 6.5 24.0 9.6 18.8 11.6
MICRO-MECHANICS 5DD 218 5.7 -4.3 -8.6 128.3 15.8
INNOTEK LTD M14 108 2.3 12.7 16.9 145.5 4.4
NERA TELECOM N01 100 3.8 7.1 -5.2 -38.9 13.4
PROCURRI CORP BVQ 91 NA 18.5 20.8 -30.2 14.7
CEI LTD AVV 79 1.5 18.9 14.3 57.6 10.9
MDR LTD A27 65 3.1 4.7 109.3 -23.5 25.0
Average 3.8 24.0 25.8 132.9 14.1

* CEIEC (HK) and parties acting in concert with it have proposed to take TPV private through a scheme of arrangement.
Source: Bloomberg & StockFacts (data as of 23 Aug 2019)



Pockets of Resilience

Selected companies within Singapore’s tech sector are still able to maintain growth despite prevailing geopolitical headwinds, thanks largely to captive demand, driven by either a diverse customer base and/or niche product offerings.



Venture Builds on Unique Offerings, Wide Customer Base

In its 8 Aug 2019 results statement, Venture reported net attributable profit of S$90.8 million for the quarter ended 30 June 2019, down 7.3% YoY, while revenue declined 5.1% to S$903.5 million.

In a report dated 10 June 2019, Maybank Kim Eng noted that although the escalation of the US-China trade dispute has clouded the outlook for the Singapore tech universe, Venture Corp remains a preferred pick for investors seeking exposure to the sector. Trade tensions could help the company secure new clients, while its well-diversified base of more than 100 customers – many of whom are blue-chip – could help smooth earnings risks. See report: Venture Corp - Long-Term Growth Intact.

In a report dated 13 Aug 2019, DBS Research also said it remains positive on Venture’s ability to monetise its unique offerings, know-how and hard-to-replicate ecosystems. See report: Venture Corporation - Resilient 1H19 Despite Volatility.



NetLink NBN Trust Eyes Expanding Connections, 5G

In its 5 Aug 2019 results statement, NetLink NBN Trust reported profit after tax for the quarter ended 30 June 2019 increased 10.0% YoY to S$20.9 million, while revenue gained 6.9% to S$92.0 million.

NetLink noted that its extensive fibre network puts it in good stead to support not only connections in the residential and non-residential segments, but also Singapore’s Smart Nation initiatives and applications. It also continues to monitor the development of Singapore’s 5G network, with the aim of tapping opportunities associated with this new market development.



Silverlake Axis Sees “Healthy” Stream of Order Enquiries

In its 23 August 2019 results statement, Silverlake Axis reported net attributable profit for the full-year ended 30 June 2019 increased 83% YoY to RM245.6 million, while revenue rose 26% to RM680.8 million.

In spite of market uncertainties, Silverlake said it continues to receive a healthy flow of new business enquiries and requests for proposals from existing and potential customers. Being a strategic partner of large financial institutions in Asia, it is responsible for maintaining and enhancing their mission critical IT systems, it added.



AEM Rides Growing Demand for Its Chip Testing Platforms

On 25 July 2019, AEM raised guidance for orders to be delivered in FY19 to S$255 million from S$209 million in April 2019. Its FY19 revenue guidance was also lifted to S$265 million-S$280 million from S$225 million-S$250 million previously. In its 8 Aug 2019 results statement, AEM reported net profit of S$15.7 million for the quarter ended 30 June 2019, up 65.4% YoY, while revenue increased 34.8% to S$97.9 million.

AEM noted that it has been working on diversifying its customer base through its AMPS (Asynchronous Modular Parallel Smart) platform initiative, while its Micro Electro-Mechanical Systems (MEMs) testing solutions division also recently received an order from a major German sensor supplier, marking “an important first step in a multi-year sales process.

In a research report dated 29 July 2019, Maybank Kim Eng said AEM continues to benefit from increased orders for its semiconductor test handling platforms, thanks to their superior throughput, accuracy and cost-effectiveness versus conventional testing methods. See report: AEM Holdings - Addressable Market Maintained.







This article is provided by SGX My Gateway.



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