What you need to know about the SG market last week

#whatstrending feat. Beansprout

Ever wondered what is currently driving the local and regional markets? #whatstrending is a new series addressing some of the most trending questions/topics on the markets for investors. Designed to be educational, expect to get factual information on what is driving sectors and stocks listed on SGX, featuring insights from professionals in the community.

Today, we hear more from Beansprout, Singapore’s next-gen investment research and advisory platform. Gerald Wong, founder and CEO, shares his thoughts on market developments.

Q: The results of Singapore banks are always closely watched. What are some of the key takeaways from the results?

From Gerald, founder and CEO of Beansprout:

Rising interest rates impact. Singapore banks benefited from rising interest rates and reported an increase in net interest margin (NIM) and higher profits in 2Q22. OCBC saw the sharpest improvement in NIM with a 16 basis point (bp) improvement compared to the previous quarter, while UOB’s NIM grew the least with a 9 bp increase.

What also caught our attention was that DBS shared its NIM had already exceeded 1.80% in July, rising further from 1.58% in 2Q22, and expressed confidence that NIM could reach 2.00% between 3Q22 and 4Q22.

Asset quality in focus. Investors are expressing growing concerns about a deterioration in asset quality for Singapore banks, after UOB reported an increase in non-performing loans (NPLs) to 1.7% in 2Q22 from 1.5% in 2Q21. UOB management explained that this was due to its exposure to a Chinese property company. In total, its direct exposure to Chinese developers is estimated to be 1% of its loan book.

China companies exposure. This increase in NPLs was not seen for DBS and OCBC. In fact, OCBC’s NPLs declined to 1.3% in 2Q22. In response to concerns about exposure to slowing Chinese growth, Singapore banks shared that they predominantly service the offshore needs of Chinese companies when they expand overseas, as well as existing customers within ASEAN when they expand into China. As a result, their exposure to domestic activities of Chinese companies is limited. DBS’ NPL remained unchanged compared to the previous quarter at 1.3%.

Balance sheet and dividends. Singapore banks continue to maintain a strong balance sheet position. DBS commented that it intends to review its dividend policy at the end of this year and could potentially hike its dividend in 2023.

Q: Were there any other earnings announcements that surprised the markets?

From Gerald, founder and CEO of Beansprout:

STI Outperformance with 5.1% gain YTD. Apart from the strong results reported by the banks, the recent earnings season also brought many positive surprises for investors. This has helped propel the Straits Times Index (STI) to be one of the best-performing indices globally so far this year, with a year-to-date gain of 5.1% as of 5th August 2022.

Notable company earnings last week:

Singapore Airlines reported 1QFY23 operating profit of S$556mn as soaring air travel demand led to its second highest quarterly operating profit in its history. As of 1QFY23, SIA’S passenger capacity was at 61% of its pre-pandemic levels. It plans to reach 76% of its pre-COVID passenger capacity by 3QFY23.

Wilmar’s 1H22 profit rose 55% to US$1.2bn on the back of improved performance across all key business segments. An interim dividend of S$0.06 was proposed, the highest interim dividend since listing.

Sembcorp Industries announced its profit surged nearly 11 times in 1H22 to S$490 million, boosted by higher electricity prices in Singapore and India. Management indicated that it “may reward investors with a special dividend” for FY2022.

Raffles Medical Group reported a profit of $59.7 million 1H22, a 51% rise compared to the previous year. This came largely on the back of higher revenue from Covid-19-related services as well as a comeback in medical tourism as Singapore reopened its borders. According to SGX data, Chairman Dr Loo Choo Yong also bought more than 350k shares of Raffles Medical Group last week.

For more Beansprout’s Fresh Takes, visit growbeansprout.com.