Temasek has set another record year.
For its financial year ended 31 March 2022, Temasek’s reported an all-time high net portfolio value of S$403 billion, up around 6% from S$381 billion at end-March 2021, which was already a record-setting year.
Out of its multi-billion-dollar portfolio, 27% is invested in Singapore companies, including both listed and private ones. This is in comparison to FY2021, where China previously formed the largest geographical component (27%) of Temasek’s investments.
In this week’s edition of 4 Stocks This Week, we look at four major Singapore-listed stocks that are part of Temasek’s portfolio. Those companies are also part of the Straits Times Index (STI), which serves as a proxy for the Singapore Exchange.
DBS Group (SGX: DO5)
DBS Group Holdings Ltd (SGX: D05) is Singapore’s largest bank and one of the biggest financial groups in Asia with a presence in 18 markets such as Hong Kong, China, and India.
DBS has won some of the most prestigious banking accolades over the years. For instance, it has won the “World’s Best Bank” award by Euromoney a couple of times, including last year.
DBS’ achievements are not surprising, given how it has grown its business.
From 1998 to 2021, the bank managed to increase its total income by 8x, from S$1.9 billion to S$14.3 billion. Its net profit also ballooned – from just S$112 million in 1998 to S$6.8 billion last year.
For its 2022 first-quarter, DBS’ total income and net profit fell by 3% and 10%, respectively, both on year-on-year basis. But on a quarter-on-quarter basis, total income rose 14% and net profit grew 30%. The bank’s first-quarter net profit of S$1.80 billion was the second highest on record.
DBS continues to pay sustainable dividends to its investors. For the latest quarter, DBS declared a dividend of 36 Singapore cents per share, the same as the fourth quarter of 2021.
Source: DBS 2022 first-quarter earnings presentation
DBS shareholders would be delighted to know that the bank is committed to paying 36 cents per quarter going forward. In its 2021 annual report, it mentioned the following:
“…[B]arring unforeseen circumstances, the annualised dividend going forward would be SGD 1.44 per share. The increase is in line with our policy of paying sustainable dividends that grow progressively with earnings.”
The dividends from DBS certainly contributed to Temasek’s dividend income of S$9 billion for its latest financial year.
As of 31 March 2022, Temasek owned 29% of DBS, with the bank taking up 7% of the investment entity’s portfolio. This makes DBS the largest investment in Temasek’s portfolio.
Since the start of the year, DBS’s share price has gone down about 9.5%. Its shares are currently trading at 29.67 as of 15 July 2022.
Singtel (SGX: Z74)
Singapore Telecommunications Limited (SGX: Z74), or Singtel for short, is the largest telco in Singapore with 4.1 million mobile customers here.
Other than Singapore, Singtel has investments in regional telcos such as AIS in Thailand, Airtel in India, Globe in the Philippines, and Telkomsel in Indonesia. AIS, Globe and Telkomsel are the top telcos in terms of market position in their respective countries while Airtel is number two in the South Asian country.
Singtel also fully owns Optus, the second-biggest telco in Australia, behind the leader Telstra.
Temasek had a 51% stake in Singtel, as of end-March 2022, and the telco took up 6% of its overall portfolio. Singtel is the second-largest investment in Temasek’s portfolio.
Unlike DBS, though, Singtel’s dividend record is far from stellar.
Over the past five years, the telco’s dividends have fallen from 17.5 Singapore cents per share in FY2017 (financial year ended 31 March 2017) to 7.5 Singapore cents per share in FY2021.
It’s not hard to see why.
During the same time frame, Singtel’s operating revenue fell from S$16.7 billion to S$15.6 billion while underlying net profit (which is net profit before one-off items) tumbled from S$3.9 billion to S$554 million. Intense competition in the telecommunications space has taken a toll on Singtel’s business.
With the proliferation of internet-enabled messaging and voice services such as WhatsApp and over-the-top service providers like Netflix, Singtel doesn’t have the stronghold it once had.
In Singapore, consumers also have more choices in terms of their telco provider with the entry of the fourth telco TPG Telecom and mobile virtual network operators (MVNOs) like Circle.Life.
Investors who are looking to invest in Singtel must discern whether the telco can re-invent its business in the years ahead as it focuses on three growth areas of capturing 5G market share; developing new growth engines in information and communications technology (ICT) and digital services; and unlocking the value of its quality infrastructure assets.
Since the start of 2022, Singtel’s share price is up about 13.7%. Its shares are currently trading at $2.65.
Singapore Airlines (SGX: C6L)
Singapore’s flag carrier, Singapore Airlines (SGX: C6L) (more fondly known as SIA) is another major investment for Temasek.
As of end-March 2022, the state-owned investment company had a 55% stake in SIA.
SIA was badly affected during the Covid-19 pandemic as countries closed their borders and people were made to seek shelter indoors.
For FY2020/21 (financial year ended 31 March 2021), SIA’s revenue plunged over 70% year-on-year to S$3.8 billion as a result of the travel curbs. With that, its operating loss stood at a staggering S$2.5 billion and net loss was S$4.3 billion.
If you recall, SIA cut 96% of its passenger capacity, deferred upcoming aircraft deliveries and payments as well as reduced the remuneration of company directors and management at the peak of the pandemic.
To cope with the headwinds coming from Covid-19, SIA raised over S$20 billion in fresh liquidity overall, including S$15 billion from shareholders through rights shares and rights mandatory convertible bonds.
Things are looking rosier now with the pandemic under control and most countries welcoming visitors with open arms once again.
The SIA Group carried 3.9 million passengers in FY2021/22, up six-fold from a year before. For the latest financial year, SIA’s revenue doubled to S$7.6 billion while net loss narrowed to S$962 million.
Looking ahead, SIA said:
“Singapore further relaxed border restrictions in April 2022, removing the need for quarantine, as well as both pre-departure and on-arrival Covid-19 tests for fully vaccinated travellers. Key markets around the world have further eased travel restrictions, supporting a strong recovery in demand in air travel across all cabin classes. Forward sales, when measured as a percentage of the total number of seats available, in the next three months up to August 2022 are approaching pre-Covid-19 levels. The Group will closely monitor demand, remain nimble and alert to all opportunities that may arise, and adjust its capacity and services accordingly.”
It looks like SIA is taking off to the skies again.
Since the start of the year, SIA share prices have climbed by about 4.0% and are currently trading at $5.21.
ST Engineering (SGX: S63)
Singapore males who have been to National Service (NS) would be very familiar with the weapons from Singapore Technologies Engineering Ltd (SGX: S63) (ST Engineering).
Ultimax 100, the world’s lightest machine gun that has a drum magazine and can be reloaded on the move, is the brainchild of ST Engineering. I fondly remember using the weapon, sometimes called SAW, during my NS days. The SAR21 rifle, one of the very first weapons enlistees handle, was also created by the integrated defence and engineering group.
As a dividend stock, ST Engineering has not disappointed either.
Over the past five years, the engineering company has dished out 15.0 Singapore cents per share in dividends each year. With ST Engineering’s earnings per share (EPS) standing at 18.3 cents in 2021, it translates to a dividend payout ratio of 82%. The dividend payout ratio reveals the percentage of a company’s earnings that are paid out yearly as a dividend and can give clues about a company’s dividend sustainability.
Anything above 100% could mean that there’s a higher chance for dividends to be cut in the future.
As of 31 March 2022, Temasek owned 51% of ST Engineering and over the past five years, the company has delivered a total shareholder return of 6.3% for Temasek.
Other Singapore-Listed Companies That Temasek Invests In
For those who are curious, other Singapore-listed companies that Temasek invests in (not necessarily STI components) are:
- Sembcorp Industries Limited (SGX: U96)
- Sembcorp Marine Ltd (SGX: S51)
- Sats Ltd (SGX: S58)
- Keppel Corporation Limited (SGX: BN4)
- Olam Group Ltd (SGX: VC2)
Potential investors can use the ideas presented above to further research into the companies that interest them before investing.
Remember, doing your own due diligence is extremely important when it comes to investing.
Just because Temasek invests in a certain company doesn’t make it an automatic “Buy” since your financial goals might be totally different from that of the investment firm.
This article was written by Sudhan P, an investment analyst who is an avid investor of businesses listed on the stock market for over a decade now and is a huge advocate of investor education.
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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.