Analysts are maintaining bullish end-2022 targets, even as the Omicron variant is the latest hurdle to the market’s eventful recovery journey. Meanwhile, will the much-heralded Spac framework carry the IPO momentum forward?
Singapore may have seen multiple months of lockdowns and fewer IPOs in 2021, but market optimism is in no short supply, even amid fears of the new Omicron Covid-19 variant, first identified in late-November.
This time last year, analysts were expecting the Straits Times Index (STI) to recover from the lows of 2,200 during the “circuit breaker”.
“Our end-2021 target is 3,200 points,” said Paul Chew, head of research at PhillipCapital, last November.
Encouragingly, the STI started 2021 strong, breaking the 3,000-point mark for the first time since the outbreak of the pandemic. By April, the index had reached the projected 3,200 figure, cresting three times that month alone.
But Covid-19 has proven more of a bugbear than expected. The index took a dip to 3,055 points the following month as Phase Two (Heightened Alert) restrictions kicked in from May 16. With dining-in banned, Singapore effectively returned to the restrictions of the circuit breaker a year prior.
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The STI would only break the 3,200-point mark again on Aug 10, a day after National Day, before slipping for the remainder of the third quarter.
Amid Singapore’s reopening, the index began climbing again in October, reaching a year-to-date peak of 3,273 points on Nov 8. Fears of the Omicron variant, however, have forced the STI to hand over its gains from the past two months.
After Moderna CEO Stephane Bancel commented on Nov 30 that existing vaccines could be less effective against the new variant of concern (VOC), the STI saw its largest single-day decline in a year, falling 2.5%, or 79.29 points, to 3,041.29.
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Moderna CEO Stephane Bancel (Photo: Bloomberg)
After Covid-19 and the Delta variant, could Omicron set the global economy back yet again? Maybank Kim Eng Research analyst Thilan Wickramasinghe notes that the S&P 500 is displaying a similar trajectory to Delta when it was designated a VOC by the World Health Organization.
On the other hand, the STI is seeing a “far more negative reaction”. The S&P 500 fell 3% three days from the designation of Omicron as a VOC, similar to its loss from Delta.
The STI, however, has fallen 6%, compared to 2% for Delta.
In his Dec 1 note titled “Here we go again (or not?)”, Wickramasinghe thinks Omicron fears may present some opportunities for Singapore counters. He is maintaining a 12-month target of 3,650 points for the STI.
“We think the difference could be heightened fears of a rollback in Singapore’s nascent reopening. With an 86% vaccination rate, higher ICU capacity and a so-far balanced approach to social distancing and visitor arrivals since the Omicron VOC designation, we believe Singapore’s reopening momentum is set to progress forward,” writes Wickramasinghe.
From the height of fear during Delta, names in REITs, technology, consumer and financials saw notable re-ratings of 2% to 25% from their bottoms, he adds. Wickramasinghe goes on to list his preferred stock picks: Q&M Dental Group and Raffles Medical Group will generate more business from increased testing services and health protocol themes; and AEM Holdings and Frencken Group are hitching a ride as structural beneficiaries of chip shortages and rising demand. CapitaLand Integrated Commercial Trust (CICT), Frasers Centrepoint Trust and ComfortDelGro provide exposure to Singapore’s reopening theme. With growing regional demand, Sea, United Overseas Bank and DBS Group Holdings are well poised to benefit.
In the short term, however, news flow on travel restrictions and local variant cases will get worse before getting better, say DBS Group Research analysts Paul Yong and Yeo Kee Yan. “Under the worst-case scenario, we think that the reopening of borders could be pushed back by six to nine months.”
In this worst-case scenario, they view aviation, hospitality, technology, oil and gas, banking and plantations as the sectors most negatively affected by a dominant Omicron variant.
For now, Yong and Yeo expect research on vaccines’ efficacy against Omicron to be completed by the end of the year. “Pending this outcome, we see support at 3,100 and strong support at 3,040,” write the analysts in a Nov 29 note.
“We think the key information to watch is the effectiveness of current vaccines in preventing hospitalisations. If the effectiveness against Omicron is high or similar to Delta, equity markets should snap back quickly to pre-Omicron levels,” they add.
Still, the general consensus is that a domestic lockdown is unlikely for now, notes CGS-CIMB Research analyst Lim Siew Khee in a Dec 3 report.
“We sense that in the very short term, market momentum is likely to lose steam. The period ahead calls for selective stock-picking, in our view, rather than overhyping the gloom,” she writes.
While Lim is “under no illusion” that reopening stocks are on the mend for a rally, she sees the opportunity to “bottom fish” reopening stocks that have been punished with news of the new variant.
They are: Genting Singapore, Singapore Airlines, SIA Engineering, SATS and ComfortDelGro.
Lim believes technology stocks will begin a three-year supercycle with three-year average growth of 14% through to FY2023, led by strong demand orders.
Telco is another sector that could emerge as an underdog in 2022, she writes, offering earnings swings of 24% (from 5% in 2021) and 19% through to 2023.
“Finally, we believe the consumer sector earnings growth of 14% in 2022 is achievable, driven mainly by Thai Beverage Public Co which has seen a good recovery in demand with the easing of social restrictions since September,” she adds.
Finally, compared to Wickramasinghe’s 12-month STI target of 3,650 points, Lim holds a slightly measured end-2022 target of 3,506 points. “[The] emergence of more virus variants could throw spanners into the works,” she says.
Short list of listings
For the second year in a row, the Singapore Exchange (SGX) saw nine quiet months, followed by a busy fourth quarter for IPOs.
In both years, the Singapore capital market experienced “difficult times” in the former half, says Tay Hwee Ling, disruptive events advisory leader for Deloitte Southeast Asia and Singapore.
See: Mixed IPO scorecard for SGX in 2021 thus far; Thailand leads for third year
“Last year, many were trying to rush out their IPOs in the last quarter or second half of the year, after the circuit breaker. The businesses had started to get back to work, so transactions that were ready were able to hit the market,” Tay tells The Edge Singapore.
Since October, SGX has seen four new debuts — as many as in the first three quarters combined. “Similarly, this year, there was a bit of a lull because of two things: one is Covid-19, and the other is the markets anticipating Spacs,” adds Tay.
SGX introduced the special purpose acquisition companies (Spacs) framework in September. Several Spacs have reportedly filed their applications, but not one has gotten off the starting block yet.
According to Deloitte, there were a total of 11 IPOs in 2020 with US$968 million ($1.32 billion) raised. While this year reaped only eight entrants, the total proceeds of some $1.66 billion trump last year’s figure.
Notably, the final two listings to join this year’s cohort contributed more than 77% of the year’s IPO proceeds.
With a market capitalisation of US$600 million upon its IPO on Dec 6, the debut of Digital Core REIT is a triumphant finale for 2021. It is the largest offering on the SGX Mainboard this year and the second REIT listing after Daiwa House Logistics Trust.
The latter was itself relatively sizeable — it raised $464.4 million in its IPO on Nov 26. “The Singapore IPO market itself is actually not performing worse off compared to last year. In fact, we have larger transactions despite a lower IPO count, along with higher fund-raising and higher market caps,” says Tay.
Prior to the two heavyweights, the bulk of the year’s proceeds were raised by Aztech Global, which raked in $314.4 million. The remaining issues — including Econ Healthcare, OTS Holdings, Audience Analytics, Trans-China Automotive and Mooreast Holdings — raised between $7.8 million and $19.6 million.
Can this bourse bounce back?
Singapore’s stock market may have seen increased trading interest amid the pandemic, but other exchanges in the region have grown even faster, said Ravi Menon, managing director of the Monetary Authority of Singapore, at last month’s inaugural Singapore Capital Markets Symposium.
Thailand remains the leading Asean IPO market for the third consecutive year, ahead of Indonesia, Malaysia, the Philippines, Singapore and Vietnam, says Deloitte in its annual take on the regional IPO scene.
Deloitte cites a stable economy, strong currency, low interest rates and consistently strong domestic liquidity as factors for the Thai bourse’s success. As at Oct 15, there were 36 new listings on the Stock Exchange of Thailand (SET) with a total of US$4.2 billion raised, or 43% of the Asean total.
Thai state-owned oil and gas company PTT Oil and Retail Business claimed the pole position with US$1.8 billion raised. “IPOs continue to be a major growth driver for the Stock Exchange of Thailand. This year’s IPOs are diverse, from oil groups to telecommunications, retailers and finance companies, thus appealing to a wide range of investors,” says Wilasinee Krishnamra, disruptive events advisory leader for Deloitte Thailand.
Thailand, too, is seeing a backloaded year for listings. “We expect at least 10 more IPOs in Thailand to top off an already stellar IPO year, and based on the performance of the newly listed tech companies on the Market for Alternative Investment (MAI), we should see more digital and tech companies going public in Thailand, a departure from the usual traditional companies,” she says.
MAI is an independent stock exchange established by SET in 1998. It serves as an alternative stock market for SMEs.
Meanwhile, in Malaysia, with 24 listings as at Nov 15, its number of IPOs has returned to pre-Covid-19 levels, driven by cornerstone investors and an abundance of uninvested capital, says Deloitte.
“As we keep an eye on the macroeconomic impact of fiscal and regulatory policies, including sustainability reporting, on global markets, we expect 2022 to be a busy year,” says Wong Kar Choon, disruptive events advisory leader for Deloitte Malaysia.
With the smallest number of IPOs in the region, is Singapore’s paltry showing irreversible? Deloitte’s Tay thinks otherwise. “Moving forward, REITs will continue to be a stronghold for the Singapore market, because of the strong ecosystem and history that we have.”
“With the subsequent Spac listings, high-growth tech companies will most probably come into the picture. That will bring up the market cap and potentially fund-raising as well,” Tay adds.
Sacrificial Spac?
Spacs may help end Singapore’s IPO drought, but the republic is not the only one waiting with bated breath. “Because we are the first in Asia, I would expect many in the region to be looking at it,” says CGS-CIMB group CEO Carol Fong.
“Eight to 10 years ago, we were the biggest [exchange] in the Asean market. Look where we are today. But that doesn’t mean that we can’t be there again,” Fong tells The Edge Singapore.
Fong also highlights local companies with funding in excess of $700 million — the “to-be unicorns”, as she puts it. “The next segment of our potential list is whether we can persuade these ‘to-be unicorns’ to potentially consider either listing here directly or via a Spac.”
The Dec 2 Nasdaq listing of Grab may have left many of its peers here starry-eyed, but Fong thinks it would not make sense for most companies to head to the US, even with valuation of, say, $2 billion.
“[The US exchanges] would probably want $50 billion, $100 billion; if you do a listing at $2 billion in the US, you are a small cap, a micro-cap. Whereas here, $1 billion-$2 billion is a midcap [company],” she adds.
Then, there are the companies that have been on the radar of government-linked companies here, says Fong. “Shopback is one. They are not quite a unicorn yet, but where some of the GLCs are investing, that’s where you need to look.”
The local rewards platform snagged US$40 million in its latest funding round in October, with US$32.5 million coming from Temasek alone. Temasek had earlier led a US$75 million round into the company in March 2020.
According to VentureCap Insights, the latest round values the seven-year-old start-up at some US$539.4 million.
More recently, Shopback acquired local “buy now, pay later” platform Hoolah. In a Nov 2 press release, Shopback claimed to have over US$3.5 billion in annual sales for over 8,000 online and in-store merchant partners.
Speaking at the Singapore Capital Markets Symposium on Nov 17, Fong drew parallels between the current hesitation over Spacs to the earliest days of the SGX’s now-famous REITs. “Very few remember, actually, those days, we had one big failure,” she says.
Two decades ago, CapitaLand’s first attempt at listing a REIT — namely SingMall Property Trust — failed. It tried again and launched the repackaged CapitaLand Mall Trust (which is part of CICT today), whose success inspired dozens more to follow over the years.
SGX is now the third-largest market for REITs and business trusts in the Asia Pacific, with a total market value of some $125 billion.
Given the comparison, must there be a “sacrificial lamb” this time round too?
Says Fong: “I’m not saying we need to have a Spac or de-Spac failure. But we need the first one to come up. Whether it’s a success or failure, it doesn’t matter. The important thing is to try.”
The Spac framework started getting popular in the US some three years ago, she adds. “In fact, it is now a fading fad; Spacs in the US are less popular [than before]. But Asia has just barely started. Asia always lags behind; that’s a fact. But I think Singapore has taken the lead on this one.”
Vertex Holdings, a unit of Singapore state investor Temasek Holdings, and European asset manager Tikehau Capital were preparing to lodge preliminary prospectuses for Spac listings in mid-December, reported Bloomberg on Dec 3.
See: Singapore's first wave SPACs said to move filing plans ahead
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Citing unnamed sources, the report also claimed Singapore buyout firm Novo Tellus Capital Partners is set to file key documents for a Spac on SGX.
“Whether or not it fails, or whether there should be blood in the streets, we don’t know. The important thing is that players in the ecosystem must continue to believe that this will succeed,” says Fong. “Based on past experiences, it takes time to develop a new concept.”
Photos: Deloitte, MAS, Albert Chua / The Edge Singapore
