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4 Stocks This Week (Australia) [24 August 2018] Alliance Mineral; Frasers Property; QAF; Singtel

Australia welcomes its fifth prime minister in five years. How are stocks on SGX with significant Australian interests reacting?


On Friday, Australia prime minister Malcolm Turnbull was ousted from office, following a bitter leadership battle fought within the Liberal Party. He was replaced by Scott Morrison, who was considered to be the most market-friendly contender, and previously served as Australia Treasurer. This would make Morrison Australia’s fifth prime minister in five years.

This was despite a strong economy under Turnbull’s watch. According to Australia’s latest GDP figures, Australia’s economy grew by 3.1% year-on-year (YOY) in Q1 2018, the fastest since Q2 2016, on the back of strong growth in mining and energy exports.

In 2017, Australia’s iron ore exports were valued at A$63 billion, which accounted for 17% of Australia’s total exports. However, the iron ore industry is expected to run into headwinds. Australia projects that rising iron ore production and falling demand from Chinese steel producers could see iron ore prices tumble over 10% by 2020.

At the same time, the Australian Dollar (AUD) is under significant downward pressure. Last week, it reached parity with the Singapore Dollar, falling below S$1 to a four-month low. Against the US dollar, the AUD which used to buy 81 US cents in January, currently buys only 73 US cents, which amounts to a depreciation nearly 10%.

Australia is Singapore’s third largest services trading partner and 13th largest trade partner, with bilateral trade reaching $18.2 billion in 2016. Singapore investors are also amongst the biggest foreign players in Australia’s real estate market. Despite resilient property prices across Australian cities like Sydney, Melbourne and Perth, Singapore’s real estate investment in Australian property skyrocketed 141% YOY to US$3.5 billion in 2017.

Responding to surging property prices, the Australian government progressively introduced additional restrictions on foreign buyers, which has helped to cool Australian property prices, which are 2% down from their peak in December 2017.

On this week’s edition of 4 Stocks This Week, we will look at four Australia-exposed stocks listed on the SGX.

Read Also: 4 Promises By Overseas Property Developers That Should Make You Wary

Alliance Mineral Assets Limited (SGX: 40F)

Alliance Mineral Assets (AMA) is a mining company headquartered in Perth, Australia, which develops and exploits minerals like tantalum and lithium.

In April, AMA announced that it would merge with Tawana Resources NL to exploit the full potential of the jointly-owned Bald Hill mine in Western Australia. Following their merger, AMA says that both companies will increase lithium concentrate output, increasing the current minimum commitment of 80,000 tonnes to between 90,000 and 100,000 tonnes.

However, Chilean lithium miner SQM, which is the world’s biggest lithium producer, projects that lithium prices could fall by 10% for the second half of 2018, which could impact AMA’s profitability.

On 30 May, Credit Suisse spent $4.2 million to purchase 12.3 million shares, which raised its deemed interest in AMA form 3.65% to 5.6%, making it a substantial shareholder of AMA.

Year-to-date (YTD), AMA’s share price is down nearly 30%. With a current market cap of $197.8 million, AMA’s share price closed at $0.285 this week.

Frasers Property Limited (SGX: TQ5)

Frasers Property Limited is a multi-national real estate company that owns, develops and manages a diverse portfolio of properties across Singapore, Australia, Southeast Asia, China and Europe.

Earlier in August, Frasers released its financial results for the quarter ended 30 June 2018. Frasers reported that its revenue fell by 2.7% YOY, to $1.36 billion, attributing the fall in revenue to the “inherent lumpiness of development income”, which tends to fluctuate more than recurring income.

This is evident in Frasers’ breakdown of its individual business segments. For example, while revenue from Singapore soared by 180% YOY to $680.1 million, while revenue from Australia fell by 57.7% YOY to $288.3 million in the same quarter.

In Australia, Frasers is on track to complete 3,000 units by the end of FY18, having completed 1,955 units in 9M FY18. This is expected to contribute to Frasers’ total revenue for the following quarter.

However, maiden contributions from the Group’s industrial and logistics parks in Continental Europe and business parks in the United Kingdom helped to anchor operating results, allowing Frasers to register an 8.6% growth in net profit, to $198.1 million.

Frasers has also stepped up its borrowings, with the short-term repayable amount standing at $2.7 billion, or 75.4% higher than September 2017, while its long-term repayable amount stands at $12 billion, 20.1% higher than September 2017.

Amongst property developers, Frasers was amongst the least impacted by property cooling measures introduced in July, owing to its low exposure to the Singapore residential market. This has allowed Fraser to offer a relatively high dividend yield of 5.15%.

Yet, despite reporting strong profit growth, Frasers’ share price is down 20.4% YTD.

With a market cap of $4.8 billion, Fraser’s share price closed at $1.67 this week.

Read Also: What The Latest Round Of Cooling Measures For Singapore’s Property Market Means For Investors

QAF Limited (SGX: Q01)

QAF Limited is a food company based in Singapore. QAF has business operations scattered across the Asia-Pacific region, including Malaysia, Australia and Taiwan. Its core businesses include Bakery, Primary Production and Trading and Logistics. QAF owns food brands like Gardenia, Bonjour and Rivalea, Australia’s largest pork producer.

Earliest this month, QAF released its Q2 2018 results, announcing that its revenue fell by 1.7% YOY to $199.2 million. QAF attributed the fall in revenue mostly to oversupply within the meat industry which depressed prices, which pushed down Rivalea’s revenues by 4%. On the cost front, Rivalea was challenged by higher feed and energy costs, which eventually hurt QAF’s bottom line.

QAF’s Bakery segment also took a hit, as while QAF’s bakery operations in Australia enjoyed revenue growth due to better market reach, its Singapore bakery operations suffered a decrease due to lower demand for white bread.

Overall, QAF was hurt by higher operating expenses, especially in the costs of materials and higher amortisation and depreciation expenses. Total expenses grew by 4%, or $7.5 million, to $198.4 million.

Ultimately, this caused QAF’s net operating profit to plummet by 92.7%, to $862,000. Investors were unimpressed by QAF’s performance, sending QAF’s share price falling 29.2% YTD.

Nevertheless, on 3 July, QAF’s Joint Group Managing Director Lin Kejian raised his deemed interest in QAF to 47.94%.

With a market cap of $459.3 million, QAF’s share price closed at $0.805 this week.

Read Also: 4 Stocks This Week (F&B) [20 July 2018] Jumbo; Kimly; Koufu; Tung Lok

Singapore Telecommunications Limited (SGX: Z74)

Singapore Telecommunications Limited (Singtel) is a telecommunications company based in Singapore, and the largest in Southeast Asia, serving over 685 million mobile customers worldwide. Singtel fully owns Australia’s second largest telco Optus, and as of Feb 2018 has a 39.5% stake in Bharti Airtel, India’s largest telco.

According to Singtel’s 2017 annual report, Australia contributed 22% of Singtel’s net profit, compared to Singapore which contributed 30%.

In August, Singtel released its results for the quarter ended 30 June 2018, reporting that revenue rose 2% to $4.13 billion, on the back of strong performance in Australia, which saw revenue grow by 5%, thanks to elevated customer growth across both consumer and enterprise segments and strong growth from mobile data.

However, fierce competition in other markets of India and Indonesia resulted in lower profits, but Singtel successfully gained market share. Overall, Singtel’s net profit fell 6.6% to $832 million.

Nevertheless, Singtel CEO Chua Sock Koong is bullish about the long-term growth potential of Singtel’s regional associates.

On Thursday, Singtel shares jumped by 7.5%, after its Australian telco competitors including Vodafone Hutchison and TPG Telecom announced that they were in ‘exploratory’ talks for a possible merger. Investors believed the merger would reduce the competition faced by Singtel in the Australian market.

According to people with knowledge of the matter, Singtel is said to be considering a stake in Amaysim, an Australian wireless network. If the deal goes through, Singtel could gain access to Amaysim’s 1.1 million subscribers, further raising its market share in Australia.

With a market cap of $52.2 billion, Singtel’s share price closed at $3.20 this week.

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4 Stocks This Week is not a recommendation from us to buy or sell any of these stocks. For investors who are keen to find out more, you should continue researching about them before making your investment decisions.