4 Stocks This Week (STI) [31 August 2017) – Jardine Strategic; SIA Engineering; SPH; STI ETF
In Singapore, the most well known index is the Straits Times Index (STI). The STI represents the performance of the 30 largest Singapore stocks on the Singapore Exchange (SGX) that passes key criteria such as market size, float and liquidity.
Even though there are only 30 companies in the SGX, these companies represent about 60% of the total market size in the entire exchange. Hence, many investors look towards the performance of the STI as a good benchmark to how the overall stock market is performing.
In this week’s edition of 4 Stocks This Week, we look at 3 companies and one product that is closely associated with the STI.
#1 Jardine Strategic
With a market capitalisation of about $34.4 billion, Jardine Strategic Holdings is one of the largest companies in Singapore.
Jardine Strategic is a holding company. That means it’s a company that doesn’t run any of its own core operations, but rather, derive its profits (and hence, value) from the stocks it owns in other companies. These include Jardine Matheson, Hongkong Land, Dairy Farm International, Mandarin Oriental, Jardine Cycle & Carriage and Astra International. It has a minority interest in Zhongsheng Group, one of mainland China’s leading motor dealership groups.
For investors who are vested in the STI, it’s worth noting that Jardine Strategic will maintain a potential 3.7% weight in the index. This makes it the seventh biggest component in the STI, behind the three local banks (DBS, OCBC, UOB), Singtel, Jardine Matheson and Hongkong Land, the last two of course being companies it’s also vested in.
Jardine Strategic share price is currently at S$58.89, up 24.5% since the start of 2017. Jardine Strategic is traded in US Dollar.
#2 SIA Engineering
The inclusion of Jardine Strategic means one STI component would have to make way, and the company making way is SIA Engineering.
As its name suggests, SIA Engineering is a subsidiary of Singapore Airlines (SIA) with SIA owning about 77% of SIA Engineering. The company does aircraft maintenance, repair and overhaul with SIA being its biggest customer (no surprise here).
SIA Engineering had previously maintained a 0.3% weight in the STI while its replacement, Jardine Strategic, would maintain a 3.7% weight.
SGX Market Strategist Geoff Howie observed that since both companies are from the industrial sector, the inclusion of Jardine Strategic would see the industrial sector make up 22.4% of the STI, up from 19.7% previously.
SIA Engineering marketing capitalisation is currently S$3.9 billion, with its share price at $3.49.
#3 Singapore Press Holdings (SPH)
2017 hasn’t been too kind to this popular mainstay of the STI. Everyone in Singapore knows about SPH. Unfortunately, everyone also knows about the challenges it is facing, even the people who do not invest.
Once known as a profitable media group, the internet era has seen SPH profits take a dive. In 3Q2017, SPH profits were $28.9 million, down 45.2% from the same period in 2016. Its total revenue is sliding as well, down 10.8% on a year-on-year basis. Most of the company’s decline can be attributed to its media business.
Earlier this week, SPH also announced that it has divested its 20% stake in MediaCorp TV (which owns Channel 5, Channel 8 and U and MediaCorp Studios) and its 40% in MediaCorp Press Ltd (which operates TODAY). This was for a sum of S$18 million.
In our view, this a strategic direction taken by the company to reduce its exposure in the media landscape. This seems logical from a business point of view, given that the media business of the company has been the one dragging down its overall profit.
Last year, the company also merged both My Paper and The New Paper. The company also reduced its headcount by about 10% in order to adapt to the changing media landscape.
SPH share prices have suffered a steep decline this year. It’s currently trading at close to its 52-week low at S2.78, down from $3.53 from the start of 2017. The company’s market capitalisation is at S$4.5 billion. SPH holds a weightage of 1.8% in the STI.
#4 STI ETF
With the popularity of Exchanged Traded Funds (ETFs) in recent years, many new investors have looked towards index ETFs as a convenient and suitable way to get started on investing.
Buying the STI ETF is the easiest way to get exposure to the biggest companies in Singapore. The SGX offers two ETFs that track the index, the SPDR STI ETF and the Nikko AM ST ETF. Both ETFs trade at similar price to the STI level.
In the first eight months of 2017, the STI has delivered a 13.8% price gain. Total return is 17.1% for the year, once dividends are included.
We think it’s worth noting however that four companies (DBS, OCBC, UOB & Singtel) make up about 45.4% of the STI.
If you are interested to find out more about the performance of the STI as well as the individual sectors, you can read up more on in the market updates provided by SGX My Gateway.
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