• In the 2021 YTD, Singapore’s five most traded Utility stocks, Sembcorp Industries, Keppel Infrastructure Trust, Union Gas Holdings, China Everbright Water and SIIC Environment have averaged 24% total returns with a median gain of 18%.
   
• The four companies have outpaced the 2021 YTD median total return of all APAC-listed Utility stocks at 11%, with a 7% total return for Keppel Infrastructure Trust. Across APAC, more than 500 stocks represent the Utility Sector with a combined market value that has almost doubled over the past 10 years to US$1 trillion.
   
• Decarbonisation has provided a dynamic driving transformation, infrastructure, technological development, employment and competition within the Utility Sector, impacting outlooks for the five stocks, which as a group provide Utility services in Singapore, China, India, Australia and the UK.  

Home to 60% of the world’s population, Asia Pacific is also home to almost half of the world’s Utility stocks. Investors have traditionally viewed the Utility Sector as a defensive sector, with listed stocks providing essential and regulated services and amenities to the public. These businesses span energy, electricity, waste and waste management, with decarbonisation reinforcing calls for efficiency into the generation and distribution of energy.

Across Asia Pacific, Utility stocks have generated a median 11% total return in the 2021 year to 24 August. This follows a comparatively defensive 6% median gain in 2020. The stocks have continued to move in 2021 at a similar tempo to 2H20, with median 180-day annualised volatility of APAC Utility stocks currently near 40%, as it stood at the end of 2020.

In Singapore, the five most traded Utility stocks are Sembcorp Industries, Keppel Infrastructure Trust, Union Gas Holdings, China Everbright Water and SIIC Environment. The five stocks have all posted gains in the 2021 YTD, averaging 24% total returns. Combined, the five stocks also saw an average of S$14.5 million a day in average daily turnover in the 2021 year to 24 August, while maintaining a current combined market value of S$7.7 billion.

 Source: SGX, Refinitiv, Bloomberg (Data as of 24 August 2021)


Sembcorp Industries, which is an STI constituent, has been recipient to S$66 million of net institutional inflow in the 2021 year to 24 August, with the remaining four stocks recipient to net institutional outflow. On 6 August, Sembcorp Industries reported a net profit of S$46 million for 1HFY21 (ended 30 June) compared to a net loss of S$42 million in 1HFY20. In 2020, Sembcorp Industries was the STI’s strongest performing constituent with a 51% total return, coinciding with the demerger from Sembcorp Marine. 

Retail have been net buyers of Keppel Infrastructure Trust in the 2021 year to date with net retail inflows of S$54 million, while the Business Trust generated a 7% total return. In 1Q20, Keppel Infrastructure Trust was recipient to S$13 million of net retail inflow while the Trust declined 21%, with the subsequent three quarters of 2Q20 through to 4Q20 seeing net retail outflows of S$6 million as the Trust gained 28%.  The Trust currently maintains an indicative dividend yield of 6.8% and the lowest 180 day volatility of the five stocks tabled above, at 12%, with the portfolio of the Trust segmented into the three core sectors of Distribution & Network, Energy and Waste & Water.

Union Gas Holdings has been the strongest performer of the five stocks in the 2021 year to 24 August, while maintaining the highest 180 day volatility. The stock transferred from the Catalist Board to the Mainboard on 19 July. Yesterday, Union Gas Holdings proposed the acquisition of the entire issued and paid up share capital of (i) Sembas (Asia) Trading Pte Ltd; (ii) Semgas Supply Pte Ltd; and (iii) Summit Gas Systems Pte Ltd as an interested person transaction. This followed the company reporting a 4.3% YoY increase 1HFY21 (ended 30 June) total revenue to S$45.1 million, with net profit declining 24.9% YoY to S$5.3 million, due to the rise in material costs and expenses in relation to higher sales volumes and direct material costs.

Sector Transformation Drivers

Decarbonisation has provided a dynamic that appears to be driving transformation, infrastructure, technological development, employment and competition with the Utilities Sector.

The Trustee-Manager of Keppel Infrastructure Trust highlighted on 28 July, it is looking to deepen and expand its talent pool and widen its investible universe across the infrastructure spectrum to include renewables and social infrastructure, which are among the key growth areas under Keppel’s Vision 2030. Keppel Infrastructure Trust CEO Matthew Pollard also noted in October 2020 that “Keppel Infrastructure Trust is not just about buying more assets or businesses – it’s also about building the right culture and team.”

On 6 August, SIIC Environment CEO Yang Jianwei noted the Group will look closely for development opportunities that China’s national carbon emissions trading market brings, explore innovative financing channels and speed up deployment in the environmental protection technology realm.  On 11 August, Everbright Water Chairman Wang Tianyi also noted that with governments across the world demonstrating their determination to tackle climate change, new development opportunities are expected to arise for the relevant industries and enterprises. Back in August 2018, Mr Wang stated that in China, pollution control had been named as one of the three tough bales that the country must fight in the coming years, signifying the Chinese government's determination and belief in protecting and managing the environment, which in turn will become a driving force for the future development of the industry”.

Furthermore, as maintained by Scientific Beta, the necessary transition to a low emissions economy requires dramatic changes in fuel mix for the electricity generation sector in a mere two decades.

Sembcorp Industries is continuing to transform its portfolio to focus on sustainable solutions that support the global energy transition and sustainable development, and in 1H21, installed 78MW of renewable energy capacity. Sembcorp Industries noted on 6 August approximately 87MW of renewable energy capacity was expected to come online by the end 2021, with CEO Wong Kim Yin maintaining the Group will press on with the strategic transformation of its portfolio from brown to green and deliver long-term value and growth for its stakeholders.

In May, Union Gas Holdings noted that while the current environment is unlikely to drive widespread consumer adoption and transition to renewable energy until the factors of accessibility, availability, and affordability are adequately met, the company has already begun diversifying into alternate energy products and will take exploratory steps towards greener energy products and continue to boost its capabilities in current products such as the MOU with UEC. Back in March, Union Gas Holdings announced a collaboration with Surbana Jurong Infrastructure Pte Ltd to explore the potential conversion of Union Gas’ Cnergy fuel station into a multi‐energy fueling station, which the Group believes will cater to Singapore’s future clean energy needs. 

Sector Valuation

Utility stocks do on average trade at premiums to book value, with the larger stocks by market value generally commanding higher earnings valuations. On a median basis, the five most traded Utility stocks in Singapore are trading at book value, with the average price-to-book (P/B) ratio at 1.5x, boosted by the P/B of Union Gas Holdings.

On a median basis, Asia Pacific Utility stocks trade at a 30% premium to book value. The top quartile of the Asia Pacific Utility stocks by market value trade at a 60% premium to book value, while the lowest quartile of Asia Pacific Utility stocks by market value trade at a 15% premium to book value.

APAC’s largest Utility stock by market value is China A-Share China Yangtze Power Co with a market capitalisation of US$70 billion, which has generated a 11% total return, in SGD terms, in the 2021 year to 24 August, while maintain a 30% premium to book value in-line with the Utility Sector median.