Broker: OCBC Investment Research
Date of Report: 27 May 2025

Global Markets Rally Amid Trade Tensions: In-Depth Analysis and Top Singapore Stock Picks

Market Overview: Global Sentiment Lifts Despite Persistent Uncertainties

Global markets showed renewed optimism as stock futures in the United States climbed, buoyed by positive developments in US-European trade negotiations. This follows a turbulent week where US President Trump threatened aggressive tariffs on European Union goods and major smartphone brands, casting a shadow over investor sentiment. However, a last-minute deadline extension for tariffs has provided a temporary reprieve, sending a wave of optimism through futures markets.

The euro has notably outperformed, gaining around 10% against the US dollar year-to-date, as Europe capitalizes on US policy uncertainty and strengthens its macroeconomic outlook. Meanwhile, Asian markets saw mixed results, with Japanese stocks leading gains while China and Hong Kong lagged due to concerns over automobile price wars and potential new US tariffs.

Key World Index Performances

Singapore Market Statistics

Market turnover and volume were down sharply, reflecting cautious investor participation. The Straits Times Index traded within a 52-week range of 3,198.4 to 4,005.2, with 223 gainers and 266 losers.

SATS Ltd: Navigating Tariff Headwinds and Pursuing Long-Term Growth

SATS Ltd demonstrated resilience in the face of global tariff risks, posting year-on-year improvements for 4QFY25 despite seasonal challenges.

• 4QFY25 Revenue: Rose 10.4% YoY to SGD 1.5b, with Gateway Services up 10.1% and Food Solutions up 11.4%.
• Flights/Cargo: Number of flights handled increased by 5.6% YoY, cargo processed up 11.0%, and meals produced up 3.4% YoY.
• Operating Profit: Increased 22.0% YoY to SGD 108.3m, with EBIT margin expanding by 70bps to 7.3%.
• Associates/JVs: Share slipped 30.7% YoY to SGD 21.4m, due to timing differences and non-recurring adjustments.
• Non-Operating Expenses: SGD 7.9m recorded, mainly from strategic portfolio adjustments and impairments.
• PATMI: Up 18.3% YoY at SGD 38.7m, but down 45.0% QoQ due to seasonal weakness.

For the full fiscal year, SATS’s FY25 revenue grew 13.0% to SGD 5.8b, with operating profit nearly doubling to SGD 475.7m. FY25 PATMI reached SGD 243.8m, significantly ahead of the previous year’s SGD 56.4m. A final dividend of 3.5 Singapore cents per share was proposed, bringing the full-year payout to 5.0 cents per share—a 1.7% yield based on recent prices.

Looking ahead, the company faces uncertainties related to tariff risks that are difficult to quantify. Revenue forecasts for FY26 have been revised downward, especially for Gateway Services, following the International Air Transport Association’s guidance for lower cargo demand growth in 2025. However, SATS’s acquisition of WFS has created a diversified global footprint, potentially mitigating some risks. The company continues to expect growth from Food Solutions, though any macroeconomic downturn could impact aviation meal volumes and ground handling revenue.

SATS has achieved more than SGD 103m in EBITDA integration synergies within two years, exceeding its target ahead of schedule. The fair value estimate for the stock is now SGD 3.73, down from SGD 3.93, pegged at a target FY26 EV/EBITDA multiple of 7.2x (with a slight ESG premium).

ESG Insights for SATS

SATS received an ESG rating upgrade in March 2024, reflecting enhanced raw material sourcing policies and improved food safety certifications. While its governance and health/safety programs align with peers, business ethics practices lag, and community impact assessments remain limited. SATS has set ambitious environmental targets, including a 50% reduction in Scope 1 and 2 emissions by 2030, carbon neutrality by 2040, and net zero by 2050.

Singtel: Delivering Growth and Enhancing Shareholder Returns

Singtel capped off FY25 with improved results and a strong commitment to capital management, boosting confidence among investors.

• Dividend Per Share (DPS): Increased 13.3% YoY to 17.0 Singapore cents, including a special value realisation DPS of 4.7 cents.
• EBITDA: Grew 5.4% YoY—marking the first increase after six years of decline.
• Asset Sales Target: Raised from SGD 6b to SGD 9b, reflecting successful portfolio rationalization and recycling.

For 2HFY25, operating revenue edged up 0.8% YoY to SGD 7.2b. EBITDA rose 1.9% YoY to SGD 1.8b, with margins stable at 25.8%. Contributions from associates grew 13% YoY, led by Airtel Group and AIS, partly offset by Telkomsel and Globe. A net exceptional gain of SGD 1.5b (mainly from the partial disposal of Comcentre property and Airtel-related gains) contributed to a PATMI of SGD 2.8b, while underlying PATMI increased 12.3% YoY to SGD 1.3b.

For the full year, EBITDA reached SGD 3.8b and PATMI surged to SGD 4.0b (5x YoY). A final DPS of 10 cents has been declared, split between a core DPS of 6.7 cents and a value realisation DPS of 3.3 cents.

Business Segment Performance

• Optus: Revenue up 2.7%, EBITDA up 4.0% YoY, driven by postpaid mobile price increases.
• Singtel Singapore: Revenue fell 3.3% YoY due to ongoing legacy carriage declines; EBITDA still rose 1.0% on cost optimization.
• NCS: Robust growth with revenue up 7.6% and EBITDA up 25% YoY, benefiting from strong Gov+ business demand and cost efficiency.
• Digital InfraCo: Revenue up 2.1% YoY, but EBITDA fell 5.3% YoY due to higher data centre maintenance and staffing costs.

Capital Management and Outlook

• FY26 Guidance: High single-digit EBIT growth (excluding associates), SGD 200m in cost savings, and total CAPEX rising slightly to SGD 2.5b.
• Asset Recycling: More than SGD 1.9b cash proceeds generated in FY25. Following a 1.2% stake sale in Airtel for SGD 2b, Singtel has achieved over half its previous asset recycling target and increased the goal to SGD 9b.
• Share Buyback: New program announced of up to SGD 2b over three years.
• Share Price: Up 25% year-to-date, significantly outperforming the Straits Times Index (+2%).
• Fair Value: Raised to SGD 4.51 (from SGD 4.00), mainly due to a lower holding company discount.

ESG Insights for Singtel

Singtel’s ESG rating was downgraded in October 2024 due to labor management issues, notably at Optus, which signed an enforceable undertaking with Australia’s Fair Work Ombudsman regarding alleged underpayment. While Singtel’s governance is strong, labor management practices lag top peers. The company is exposed to data privacy risks, with industry-typical security practices but lacks detailed incident response mechanisms. Singtel’s board no longer includes government representatives as of September 2024, reducing potential government intervention risks. Business ethics training is provided to all employees and contractors.

Singapore Market Leaders: STI Stocks by Market Capitalisation

Latest Analyst Ratings and Reports

• SATS Ltd: “Tariff storm spells near-term turbulence” – BUY, Fair Value SGD 3.73
• Singtel: “Stepping up on capital management” – BUY, Fair Value SGD 4.51
• City Developments Ltd: “Some encouraging signs from 1Q25 updates” – BUY, Fair Value SGD 6.01
• First Solar Inc: “45X domestic tax credits poised to survive” – BUY, Fair Value USD 427.00
• NetLink NBN Trust: “Steady distribution” – BUY, Fair Value SGD 1.01
• Singapore Airlines: “Another blockbuster year” – HOLD, Fair Value SGD 6.80
• ComfortDelGro Corporation: “Steady growth and relatively defensive earnings” – BUY, Fair Value SGD 1.71
• Tencent Holdings: “Growth acceleration” – BUY, Fair Value HKD 650.00
• Bumitama Agri Ltd: “A strong start to the year” – BUY, Fair Value SGD 0.975
• Singapore Post: “Sharpening focus on core business” – HOLD, Fair Value SGD 0.0605

Conclusion: Navigating Uncertainty with Resilience and Growth

Despite ongoing trade headwinds, global and Singapore markets remain resilient, supported by constructive economic data, policy flexibility, and strategic corporate actions. SATS and Singtel exemplify Singapore’s defensive and growth-oriented investment landscape, each adapting to external uncertainties and committing to sustainable long-term value creation. Investors are advised to monitor developments in global trade, fiscal policy, and ESG practices as these factors will continue to shape the investment climate in the months ahead.