Overview of Financial Markets as of February 3, 2025

The FSSTI Index closed at 3,855.8, reflecting a 1.4% daily increase and a year-to-date (YTD) growth of 1.8%. Other global indices displayed mixed performances, such as the Dow Jones Industrial Average, which fell 0.8% in a single day but maintained a YTD growth of 4.7%. The S&P 500 and Nasdaq Composite also experienced daily declines of 0.5% and 0.3%, respectively. Singapore’s daily market value stood at S\$1,797.8 million, with a daily volume of 1,029.9 million shares traded.

Deep Dive: Sembcorp Industries (SCI)

Sembcorp Industries (SCI) closed at \$5.58, marking a 15-cent increase. The company announced its entry into the Philippines’ renewable energy sector with a significant acquisition. Through its wholly-owned subsidiary, Sembcorp Energy Philippines, SCI signed a share purchase agreement with CleanCurrent Renewable Energy Inc. (CREI) to acquire 100% of CREI’s shares in Puente Al Sol for \$105 million. This solar farm project in Cadiz, Philippines, is expected to generate 96MW of energy and commence operations later this year. The acquisition will be funded through a combination of internal cash resources and external borrowings.

While the acquisition underscores Sembcorp’s commitment to renewables, the company missed its strategic target of deriving 70% of its net profit from sustainable solutions by 2025. This was attributed to stronger-than-expected growth in its gas business, which has nearly tripled its earnings since 2021, causing the sustainable solutions segment to represent a smaller percentage of overall net profit. Despite this, Sembcorp has set new milestones for 2028, focusing on achieving 25 gigawatts (GW) of installed renewables capacity and reducing its emissions intensity to 0.15 tonnes of carbon dioxide equivalent per megawatt-hour. SCI trades at 10.5x forward PE and 2.0x PB, with a dividend yield of 2.5%. The consensus target price is S\$6.80, representing a 21.9% upside. Lim & Tan Securities maintains an “Accumulate” rating for SCI.

Deep Dive: InnoTek

InnoTek, a precision components manufacturer, is experiencing a transformation. Initially focused on disk drive components, the company pivoted to new growth sectors like electric vehicles (EVs) and GPU servers for artificial intelligence (AI). InnoTek’s revenue for the half-year ending June 30, 2024, increased by 30.9% to S\$121.6 million, driven by projects related to GPU servers for AI applications. These new businesses now account for 27% of the company’s revenue, compared to 14% in the same period the previous year.

Despite strong revenue growth, earnings slipped 8.3% year-on-year to S\$3.2 million in H1 FY2024. This decline was attributed to disruptions in its legacy automotive business and costs associated with setting up new facilities in ASEAN countries. To diversify production, InnoTek expanded its presence in Thailand, Vietnam, and Malaysia. The company is also moving up the value chain by offering assembly operations and liquid cooling solutions for data centers.

InnoTek trades at 0.6x its book value of 76 cents. Its estimated core profit of \$10 million translates to a core PE of 10x, while non-cash provisions and impairments may result in a reported net PE of 16.7x. The company’s net cash position of \$56 million supports its usual dividend payout, translating to a net yield of 4.6%. Lim & Tan Securities recommends an “Accumulate on Weakness” strategy for InnoTek, citing short-term challenges that pave the way for long-term growth.

Other Highlights in the Market

Frasers Logistics Trust, Mapletree Pan Asia Commercial Trust, and other REITs were highlighted for their forward dividend yields, ranging between 5.84% and 7.57%. On the other hand, companies like Jardine Matheson and Singapore Airlines showcased the lowest consensus forward price-to-earnings ratios, indicating potential investment opportunities.

In the private credit market, India emerged as a bright spot, with firms planning funds exceeding US\$1 billion to tap the high-yielding debt demand. However, Asia’s private debt market faced challenges, with fundraising dropping to an eight-year low due to concerns over China’s economic growth and jurisdictional risks.

Institutional and Retail Fund Flows

In the week of January 20, 2025, institutional investors were net sellers with a total outflow of S\$449 million, while retail investors were net buyers at S\$217.5 million. DBS saw the highest institutional net sell, amounting to S\$211.2 million, while retail investors showed strong interest in DBS with a net buy of S\$106.7 million. Other notable transactions included CapitaLand Investment, SATS, and Mapletree Industrial Trust.

Dividends Announced

Several companies announced upcoming dividend distributions. For instance, OUE REIT and Suntec REIT declared dividends of 1.13 cents and 1.57 cents, respectively, with ex-dividend dates set for February 3, 2025. Mapletree Pan Asian Commercial Trust announced a dividend of 2 cents, payable on March 7, 2025.