On Tuesday, Temasek Holdings published its annual Temasek Review, to report on its financial performance for the year. This was important to Singaporeans, as part of Temasek’s financial returns are channelled to support Singapore’s yearly Budget through the Net Investment Returns Contribution (NIRC) framework. The NIRC accounts for 18% of the 2018 Budget, making it the largest source of government revenue.
In June, Azelea Group, a wholly Temasek Holdings unit, introduced the Astrea IV private equity bonds to Singapore’s retail investors. Temasek’s CEO Ho Ching said that the Astrea bonds were a way for investors to boost their retirement income, which sparked great interest amongst many mom-and-pop investors. The Class A-1 bonds, which were reserved for retail investors and returns 4.35% per annum, was heavily subscribed by 7.4 times.
As of 31 March 2018, Temasek’s net portfolio value was $308 billion, up from $275 billion in 2017. Temasek Holdings’ attributes this strong performance to the continuing global economic recovery and buoyant equity markets.
Temasek has been a beneficiary from Singapore’s improving economic performance, as 27% of its underlying assets is concentrated in Singapore. Over the last ten years, Temasek has increased its Singapore exposure by $18 billion. These include direct and indirect stakes in many SGX-listed companies, some of which are majority-owned by Temasek Holdings.
On this week’s version of 4 Stocks This Week, we examine four SGX-listed companies that Temasek has a stake in.
Mapletree Logistics Trust (SGX: M44U)
Mapletree Logistics Trust is a real estate investment trust (REIT) which owns a series of logistics properties across Asia. As of 8 June 2018, Temasek has a deemed interest in 1.1 billion shares in Mapletree Logistics Trust (MLT), which amounts to a 34.6% stake.
In April, MLT announced that it would buy a 50% stake in 11 logistics properties in China for $205.3 million. The move will increase MLT’s net lettable space in China and increase MLT’s exposure to tenants from China’s e-commerce companies, which comes amidst an e-commerce boom. In 2017, online sales in China grew 27%, compared to offline sales which grew by 6%. The trend is likely to continue as more enterprises launch online sales.
On 5 July, MLT announced its plan to acquire five logistics properties in Singapore for $778.3 million from CWT International, a subsidiary of China’s HNA Group. If the acquisitions are approved, MLT’s total gross floor area in its Singapore portfolio will increase by 20% to over 20 million square feet, consolidating MLT’s position as a leading warehouse space provider in Singapore.
In April, MLT announced that the amount it could distribute to unitholders grew 27% year-on-year to $59.2 million, while its distribution per unit (DPU) grew 4% to 1.9 cents. This was achieved thanks to an 11% increase in revenue to $107.5 million, which translated into higher net property income, which rose 14% to $91.3 million.
Unfortunately, MLT’s ambitious expansion plans did not seem to resonate entirely with investors. MLT’s share price has declined by 4.5% YTD. With a market cap of $4.2 billion, MLT’s share price closed at $1.27 this week.
M1 Limited (SGX: B24)
M1 Limited is a leading telecommunications provider in Singapore. On 8 June, Temasek’s subsidiary DBS Group bought an additional 125,000 M1 shares, increasing Temasek’s deemed interest in M1 to 20%.
In April, M1 announced that its net profit after tax was $34.8 million for Q1 2018, which was 8.3% higher than Q4 2017. Service revenue grew by 3% year-on-year (YoY) to $184.7 million, which was largely driven by stronger demand for fixed and postpaid services.
In Q1 2018, M1 added 5,000 new fibre customers, which helped to boost its fixed services revenue by 13.9% YoY. The number of postpaid customers also increased by 12,000, which brought M1’s postpaid customer base to 1.3 million.
In June, M1 announced that it would purchase AsiaPac Distribution for up to $20 million, an information and communications technology (ICT) network solutions provider which has expertise in enterprise solutions, systems integration and cloud related services. The move is aimed at helping M1 expand its business operations in the ICT segment.
The move is seen as timely for M1, as ICT is expected to continue to be a key growth area for Singapore. From 2010 to 2015, Singapore’s infocomm industry’s revenue achieved a compounded annual growth rate (CAGR) of 18% to reach $189.6 billion in 2015. The government estimates that Singapore will need 42,000 more IT professionals by 2020.
Despite this, investors have continued to shy away from M1’s stock. M1’s stock price has dived nearly 60% since its peak in March 2015, where its stock price stood at nearly $4. Year-to-date, the stock is down 9.6%.
With a market cap of $1.5 billion, M1’s share price closed at $1.61 this week.
Olam International (SGX: O32)
Olam International is a leading Singapore-based commodities business. Temasek owns 1.7 billion shares through Breedens Investments and Aranda Investments, representing a 53.6% stake in Olam.
In 2012, Olam International was attacked short-selling firm Muddy Waters Research, which published a damning report drawing parallels between Olam and Enron, the energy company which went bankrupt after being exposed as one of the largest accounting scandals in history.
Olam successfully fended off the attack, in large part due to Temasek’s unwavering confidence in the company. Temasek progressively raised its stake in Olam after the attack, from 16.3% in 2012 to being the majority shareholder today.
In April, Olam announced its launch of AtSource, a comprehensive sustainable sourcing solution for agricultural raw materials and food ingredients. The move will help Olam turn sustainability into a key business driver for transforming agricultural supply chains.
In May, Olam announced that its revenue for Q1 2018 increased by 8.5% to $6.3 billion. This was driven by much higher revenues from its Food Staples & Packaged Foods division, which skyrocketed by 34% to $2.6 billion, mainly on higher trading volumes of Grains.
This was supported by improved performance in its Industrial Raw Materials division, which saw revenue increase by 9.1% to $903.4 million on higher cotton volumes and prices. Olam’s net profit grew by 9.8% to $157.9 million.
With this string of good news, Olam’s share price is up 4.4% YTD. With a market cap of $7 billion, Olam’s share price closed at $2.13 this week.
ST Engineering (SGX: S63)
ST Engineering is an integrated defence and engineering group based in Singapore. As of 26 February 2018, Temasek has direct and deemed interests over 1.6 billion ST Engineering shares, which translates into a 50.97% stake.
In May, ST Engineering reported that its revenue for Q1 2018 rose to $1.5 billion, reflecting an increase of $136 million, or 9% YoY. This was primarily led by higher revenue from its Electronics sector, which jumped by 22% or $109 million, to $605 million. Aerospace revenue also grew by 9% or $51 million, to $599 million.
This stronger performance was reflected in the firm’s bottom line, which saw its net profit rise by 17.8% to $117.7 million for Q1 2018.
In June, ST Engineering announced that it would redeem all its outstanding US$500 million 4.80% Notes due 2019 on 16 July 2018. The company attributed the decision to higher US Treasury yields, which made it favourable to redeem the notes earlier than scheduled.
On Wednesday, the Land Transport Authority (LTA) awarded ST Engineering with a $54 million contract to procure 111 clean buses. This is likely to provide a boost to the company’s Land Systems sector. ST Engineering currently accounts for 25% of Singapore’s public bus fleet.
ST Engineering share price has also been supported by recent buybacks, most recently on 5 July and 6 July, where ST Engineering spent approximately $3.2 million to buy back 1 million shares. The stock is up 7.06% YTD.
With a market cap of $10.5 billion, ST Engineering’s share price closed at $3.39 this week.
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