Singapore’s stock market benchmark, the Straits Times Index (STI), is made up of 30 companies.
They include businesses that many Singaporeans are likely to be familiar with, such as Singapore’s flag carrier, Singapore Airlines (SGX: C6L), property company CapitaLand Investment (SGX: 9CI), and engineering conglomerate Singapore Technologies Engineering (SGX: S63). The STI also includes the three major banks in Singapore.
While the 30 companies carry weight in Singapore’s stock market – some of them have huge roles to play in our local economy – they are not indispensable.
This means that they can be booted out of the index and replaced by other companies if they don’t meet certain conditions.
Should any of the index constituents become ineligible to be still part of the STI, the next-in-line five stocks that are part of the STI reserve list can replace any of the STI components.
The reserve list consists of the five highest-ranking non-constituent STI stocks by market capitalisation.
As of December 2022, those companies are:
- Olam Group (SGX: VC2),
- Sembcorp Marine (SGX: S51),
- Suntec REIT (SGX: T82U),
- Golden Agri-Resources (SGX: E5H), and
- Frasers Centrepoint Trust (SGX: J69U).
With that, let’s explore each of the stocks that are part of the STI reserve list in this week’s edition of 4 Stocks This Week.
Olam Group (SGX: VC2)
Headquartered in Singapore, Olam Group (SGX: VC2) is a leading food and agri-business supplying food, ingredients, feed and fibre to over 20,000 customers all over the world.
Currently, Olam is present in more than 60 countries and its operations include farming, processing and distribution operations. Olam has three operating groups, and they are Olam Food Ingredients (OFI), Olam Agri, and the remaining businesses of the group.
OFI offers food and beverage ingredients and solutions such as cocoa, coffee, dairy, nuts, and spices.
Olam Agri is a food, feed and fibre agri-business focusing on high-growth consumption markets. It has leading market positions across grains and oilseeds, animal feed and proteins, edible oils, rice, and rubber, among other things.
Over the past three years, Olam’s revenue has increased from S$33.0 billion in 2019 to S$47.0 billion in 2021, up 19.4% on an annualised basis. Meanwhile, its profit after tax grew from S$316.1 million to S$686.4 million during the same time frame.
On 10 January 2023, Olam announced that it plans to spin off its majority-owned agri-business subsidiary, Olam Agri Holdings Pte Ltd (OAHPL), which holds the Olam Agri business, into a separate listed entity as early as the first half of this year. The primary listing of OAHPL will be in Singapore, while the group is exploring a concurrent listing on the Saudi Exchange.
Olam has also said previously that it’s looking to demerge OFI and list it separately on the London Stock Exchange as a primary listing, with a concurrent secondary listing here.
What will remain should both the spin-offs go through is the remaining businesses of Olam, comprising Olam Ventures, MindSprint Pte Ltd, and Olam Global Holdco.
At Olam’s share price of S$1.57, it has a price-to-book (P/B) ratio of 0.8x.
Sembcorp Marine (SGX: S51)
Sembcorp Marine (SGX: S51) is involved in the design and construction of rigs, floaters, offshore platforms and specialised vessels, as well as in the repair, upgrading and conversion of different ship types.
The marine company is set to become a larger entity, if everything goes according to its plan.
In end-October last year, Sembcorp Marine made public a simplified transaction structure where it will directly acquire Keppel Corporation’s (SGX: BN4) restructured Keppel Offshore & Marine (KOM), instead of a proposed combination of Sembcorp Marine and KOM as announced previously.
Source: Sembcorp Marine revised transaction structure announcement
Sembcorp Marine will still remain listed on the Singapore Exchange and directly issue new Sembcorp Marine shares to Keppel, if approved by minority shareholders. Sembcorp Marine expects to hold an extraordinary general meeting in January 2023 with regard to the acquisition.
Should the deal go through, Temasek will own around 35.5% of the new Sembcorp Marine entity, compared to 54.6% now.
As for its outlook, in an interim business update for the 2022 third-quarter, Sembcorp Marine said that it “continues to see improvement in orders visibility, underpinned by high oil and gas prices, renewed concerns of energy security in the wake of geopolitical tensions, and acceleration of the energy transition towards renewables”.
Thus far, the group has a net order book of S$7.11 billion, with renewable wind energy and other cleaner and green solutions accounting for around 34% of it.
Sembcorp Marine shares are currently trading at S$0.135 each, translating to a P/B ratio of 1.1x.
Suntec REIT (SGX: T82U)
With a current market capitalisation of S$3.9 billion, Suntec REIT (SGX: T82U) owns 10 properties in Singapore, Australia, and the United Kingdom (UK).
Here in Singapore, it has full ownership over Suntec City (the office and retail component), 66.3% interest in Suntec Convention (convention and exhibition centre), a one-third interest in One Raffles Quay, and a one-third interest in Marina Bay Financial Centre properties.
Overall, Singapore and the office sector contributes to most of its income, as seen from the chart below:
Source: Suntec REIT investor presentation
Suntec REIT just announced its financial results for the year ended 31 December 2022 (FY2022) on Friday, 20 January.
For its latest financial year, its gross revenue, net property income, and joint venture income all rose on a yearly basis.
Suntec REIT’s gross revenue and net property income grew by 19.3% and 24.0%, respectively, mainly due to higher contributions from Suntec City and The Minster Building (located in the UK).
However, the increase was offset by lower occupancy at 177 Pacific Highway (a property in Australia) and a weaker Australian dollar.
Meanwhile, the REIT’s joint venture income grew 3.3% year-on-year largely due to higher contributions from One Raffles Quay, Marina Bay Financial Centre properties, and Nova properties (located in the UK), but this was offset by lower contributions from Southgate Complex (a property in Australia) and a weaker British pound.
Despite the better financial performance, Suntec REIT’s distribution per unit (DPU) from operations dropped 6.7% year-on-year to 8.084 Singapore cents. However, Suntec REIT increased its DPU from capital to 0.80 cents, leading to a higher total DPU of 8.884 cents for FY2022.
Source: Suntec REIT investor presentation
Looking ahead, Chong Kee Hiong, Suntec REIT manager’s chief executive, warned of headwinds:
“While we have increased our fixed interest rate borrowings and foreign currency income hedge, the expected continued rising interest rates, weaker exchange rates and higher energy costs are expected to erode operational gains and impact our distribution significantly in the near term. We are also actively looking at the potential divestment of our mature assets to strengthen our balance sheet.”
At Suntec REIT’s unit price of S$1.37, it has a P/B ratio of 0.6x and a distribution yield of 5.8%.
Golden Agri-Resources (SGX: E5H)
Golden-Agri (SGX: E5H) is one of the world’s largest palm oil companies based in Indonesia.
The company is involved in the cultivation of oil palm trees, the processing of fresh fruit bunches into crude palm oil (CPO) and palm kernel, and refining CPO into value-added products such as cooking oil.
For the nine months ended September 2022, Golden-Agri’s revenue hit US$8.6 billion, an increase of 18% year-on-year. Higher palm oil prices mainly led to the growth, but the increase was slightly offset by lower sales volume. Meanwhile, the agriculture company’s net profit surged 151% year-on-year to US$675 million.
As for its outlook, Golden-Agri said that the “palm oil industry outlook is expected to remain favourable” and that palm oil will continue to be an attractive alternative both for food and energy consumption since it’s the most productive and cheapest vegetable oil.
Golden-Agri shares are currently trading at S$0.24 apiece, giving a P/B ratio of 0.5x and a dividend yield of 7.8%.
Frasers Centrepoint Trust (SGX: J69U)
Frasers Centrepoint Trust (SGX: J69U) is a leading pureplay Singapore retail REIT that owns malls such as Causeway Point, Changi City Point, and White Sands.
Source: Frasers Centrepoint Trust earnings presentation
With an extensive retail footprint in Singapore, Frasers Centrepoint Trust benefits from the trends brought about by the COVID-19 pandemic, such as the rise of omnichannel retailing and the shift to hybrid work arrangements.
The REIT’s properties are located near homes and transportation nodes, and they focus on diversified essential trade and services, giving it a leg up over its smaller peers.
For its financial year ended 30 September 2022 quarter, gross revenue at Frasers Centrepoint Trust increased by 4.6% year-on-year to S$356.9 million.
The growth was due to the following:
- Full-year contribution from Frasers Centrepoint Trust’s enlarged retail portfolio after its AsiaRetail Fund acquisition on 27 October 2020, and
- Absence of rental rebates provided to the tenants and increase in atrium income with the resumption of atrium events since March 2022.
However, the growth in gross revenue was partially offset by a lack of contribution from Bedok Point, Anchorpoint, and YewTee Point, which have since been divested.
With the overall revenue growth, Frasers Centrepoint Trust’s net property income rose 4.9% to S$258.6 million, while DPU increased up 1.2% to 12.227 Singapore cents.
At Frasers Centrepoint Trust’s unit price of S$2.13, it has a P/B ratio of 0.9x and a distribution yield of 4.8%.
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