4 Stocks This Week (MSCI Singapore Index Removal) [29 May 2020] Comfort Delgro; SATS; Sembcorp Industries; SPH
Earlier this week, the Singapore Exchange (SGX) announced that it would gradually discontinue most of the equity index futures and option contracts that it has with MSCI, one of the largest providers of indexes in the world.
In a briefing to analysts, SGX shared that they expect a potential hit of between 10 to 15% to its 12-month net profit. SGX share price closed at 8.28 on Friday 29 May, down 15.7%, after opening at 9.90 earlier in the week.
However, it’s also worth noting that the MSCI Singapore Index, one of the proxies designed to measure the performance of large and mid-cap segments on the Singapore market, will continue to operate, even after this discontinuation of other products offered by MSCI on the SGX.
Similar to the Straits Times Index (STI), the MSCI Singapore Index uses some of the most prominent companies listed on the SGX and would regularly review the components in the index and to add and remove companies.
In this week’s edition of 4 Stocks This Week, we look at 4 blue-chip companies that have been dropped by the MSCI Singapore Index as announced on 29 May 2020.
ComfortDelGro (SGX: C52)
ComfortDelGro has been hard hit by the COVID-19 outbreak in Singapore, and the government decision to introduce the circuit breaker and other social-distancing measures. ComfortDelGro has seen its profits for 1Q2020 decline by 48.9% compared to the year before.
Over the past 3 months, ComfortDelGro share prices have declined by 26%, from $1.95 on 28 February to $1.44 as of 29 May. It’s currently trading at a Price-to-earning (PE) of 11.7 and a Price-to-book (PB) of 1.20.
SATS (SGX: S58)
A company that derives the bulk of its revenue from the air-travel sector, SATS has naturally been impacted badly by the global coronavirus outbreak. Over the past 3 months, SATS share prices have dropped by 34%, from 4.03 on 28 February to just 2.66 as of 29 May. Share price decline since the start of the year is at 47.4%.
With the closure of both Changi Airport terminal 2 and 4 for the rest of 2020, it’s clear that air travel from Singapore is going to be significantly reduced in the foreseeable future, even when it resumes. This does not bode well for SATS’s near-term revenue and earnings.
It’s worth noting also that a large part of SATS revenue comes from Singapore (about 60% as of 3Q FY2020). However, for the overseas countries that it also operates in (e.g. China, Japan, India), all of them have been severely impacted by COVID-19 as well.
Sembcorp Industries (SGX: U96)
Sembcorp Industries has been struggling even before the COVID-19 outbreak. However, since then, its downwards decline has continued because of both the COVID-19 outbreak and also oil prices crashing.
Since the start of the year, Sembcorp Industries share prices have declined by more than 40%, from 2.31 on 2 January to 1.36 as of 29 May. PB for the company is at 0.40 and its PE is at 11.4. The company also shared earlier this month that it expects its energy business to be lower than last year due to reduced demand and falling prices.
SPH (SGX: T39)
The past 5 years have been exceptionally challenging for SPH. Its share prices have been on a gradual decline over the years as it struggles to cope with falling revenue and profitability from its media business. However, one bright spot for the company has been its real estate business, which has helped it compensate for the decline of revenue from media advertising.
Unfortunately for the company, its real estate business will be impacted in 2020 because of the COVID-19 outbreak. For example, the group has invested in Purpose-Built Student Accommodations in 2018 in the United Kingdom which will be hard hit by the outbreak in the UK. Also, SPH-owned properties such as Paragon and The Clementi Mall are likely affected due to the circuit breaker measures, and the likely slow recovery for 2020.
This has impacted its share price. SPH stocks are down more than 40% since the start of the year, from 2.20 in January to 1.28 as of 29 May 2020.