“Value up, Singapore” say CGS International’s analysts following a recent report by the Financial Times that said the Singapore Exchange S68 (SGX) is reviewing proposals to improve the Singapore market.
In a bid to revive the SGX, analysts William Tng, Lim Siew Khee and Ong Khang Chuen have proposed a series of recommendations for the exchange to consider, while highlighting SGX-listed companies that are value picks.
These companies are the Singapore Post S08 (SingPost), Centurion Corporation OU8 , and Hong Leong Asia H22 , which the analysts forecast will see earnings growth over the FY2024 to FY2025 period. The analysts have an “add” call for all these three companies, with a target price of 58 cents, 63 cents and $1 respectively.
The analysts note that nearly two-thirds of the SGX-listed stocks were trading below their historical book value. Of these 40 stocks, 62.5% were property stocks, REITs or business trusts while 27.5% were small-cap stocks.
“Property stocks, REITs and business trusts are, in our view, trading below book currently due to the prolonged high-interest rate cycle and could re-rate above book once the interest rate cuts occur,” the analysts write in their report dated May 8.
Calls to revive the Singapore stock market started back in 2015 through a letter of appeal written by the Society of Remisiers, but reemerged on Feb 13, 2024, they note.
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The SGX is now reported to be reviewing proposals from the Singapore Venture & Private Capital Association (SVCA) to improve the attractiveness of the Singapore stock market, including mandating stock market participation from the inflow of private capital into Singapore in recent years from family offices and other wealth management businesses.
Suggestions, such as allowing pension and sovereign money to be invested in the stock market, were also proposed, and more collaboration among the Southeast Asian stock markets according to the analysts.
Using Japan’s stock market revival as a case study, CGSI’s analysts propose a host of measures of their own.
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They follow four broad themes, including proposals on capital and business structures, investor relation efforts, incentives to encourage active participation by listed companies, and other possible measures.
Under capital and business structure proposals, the analysts suggest for listed companies to identify their cost of capital and return on invested capital (ROIC), return on equity (ROE) as well as examine their balance sheet structure.
Companies can make efforts to improve medium- to long-term ROE, such as setting ROE targets after calculating their cost of capital, they add.
Under investor relations efforts, the analysts propose for SGX-listed companies to hold an investor day and follow US-listed companies' disclosure practice of providing prospective quarterly and yearly revenue, order book, margin, operating expenses, capex and dividend guidance.
In order to improve more active participation among listed companies, the analysts suggest an ‘improvement period” for firms that do not meet the continued listing criteria along with the deadline for their plans. Failure to meet the criteria during the improvement period by the next reference date will result in delisting, they add.
Other initiatives the analysts have put forth include a clear share buyback policy and cancellation of shares bought back in excess of those required for employee stock options schemes.
“For instance, Valuetronics BN2 announced a HK$250 million ($43.39 million) share buyback programme on Feb 28, 2022. Since then, the share buyback has provided support for the share price and has been one of the factors in the re-rating of the share price from 53.3 cent on Feb 28, 2022 to 58 cents on Apr 18, 2024,” they note.
The SGX can also consider tax incentives and adjusted listing fees for companies that improve their valuation, the analysts say.
