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When the going gets tough, the tough gets going

By Gabriel Yap

When the going gets tough, the tough gets going

The FTSTI ended one of its longest and sharpest correction on 15th Jan 2016 at 2,523, falling a whopping 1,007 points from the high of 3,539 on 15th Apr 2015.  At the bottom of the correction (which was a great buying chance), prognosticators and doomsayers have called for a bear market and doom’s day forecast of oil and China.

Of course, if you had listened to these fair weather guys, you would have missed the chance of a lifetime bottom-fishng.

As I study the latest 1Q2016 results for Singapore corporates, what is clear is that most companies have reported earnings meeting market forecast and about 20% have reported weaker than expected earnings.  Overall, corporate earnings were 6% below expectations.

Notably, industrials, dragged down by the oil & marine sector, were the worst hit.  The sector suffered a perfect storm – depleting orders combined with project deferments combined with order book weakness.  Not surprisingly, the trio of Keppel Corp, Sembcorp Industries and Sembcorp Marine all gave up their Feb/Mar share price gains, upon the release of their recent 1Q2016 results.

The other sector that disappointed was Consumer discretionary with hotels, media and retail sectors taking a hit from the slowing Singapore economy where growth has slowed to 1.8% GDP and relatively strong S$.  The notable stand out here was Thai Beverage which benefited from a strong performance of its Beer segment.

Let’s analyse my 3 favourite sectors – Banks, SREITS and Telecoms.


I believe that 1Q2016 results should have assuaged asset quality concerns further among investors.  The 2 troubled areas – China and falling oil price have been recovering steadily.

The average NPL among Singapore banks remained low at 1.2%, with DBS’ NPL rising 9 bp to 0.97% YoY.  UOB also showed a muted increase of 16 bp to 1.36% while OCBC was just slightly worse – up 40 bp to 1.04%.

An analysis into DBS and OCBC loans revealed that both contracted their loan books by unwinding China trade-related loans while UOB’s loans grew 1% QoQ.

NIMs seem to have peter out, but I would expect them to be lack luster for 2016 as the banks shift their loan mix from trade to corporate loans admidst a slower Fed rate hike trajectory.

With strong balance sheets with average CETI1 at 12.6% and better risk quality, I would rate Singapore banks not exciting, but certainly of good valuations.


Nowhere has the divergence of operating performances being so stark as in the SREITS – both the retail and office sectors did well, meeting expectations while the hospitality and industrial sectors continued to suffer.

While office REITS reversionary rentals were not much to shout about, what surprised me was that occupancy risks were rather well-managed.

Notably too, the hospitality sector has not benefited from the jump in tourist arrivals in 1Q due to the pressure of weak corporate travel, pressure on room rates and increase in room supply.

With receding interest rates hike fears juxtaposed against an over supply backdrop, I have fine-tune my making money from SREITS for 2016 to come more than trading and  switching rather than to adopt a buy-and-hold for dividends strategy.

In this respect, I would be paying more attention to their funding structure and financial effects of any acquisitions/divestments as well as reversionary rentals studies.  These would have more immediate impact on short-term performances. 


Consensus expectations have fallen off the cliff since 2Q2015 as the market price in a 4th telco, likely to happen in 3Q2016.  This has set a lower bar for earnings beat in 1Q2016.

Starhub surprised market expectations with an earnings beat of 26% jump YoY to $93 million for 1Q2016.  Singapore Telecom also beat expectations with stable net profit of $946 million, up 4%  in constant currency terms.

What was also heartening was that Singtel’s mobile service revenue continued to surpass its competitors – up +0.4% YoY vs -1.9% for M1 and -2.4% for Starhub. 

I have always maintained that investors have already priced in the worst for telco stocks.  With a mature market and a high 48% penetration for 4G, I find it difficult to fathom if any 4th telco is able to eke out any earnings in the first 3 years of operations.

The recent strong 1Q results and weak share prices of Singapore telcos continue to allow me to increase my weightage in this sector.

Any delay in the 4th telco award, especially when there are already market talks pertaining to the difficulty of raising financing, would be favourable for the telco sector going forward.  Afterall, it has been a tough 12 months.

Nonetheless, when the going gets tough, the tough gets going.   And telcos should be ringing.

Gabriel Yap
Gabriel Yap

Mr Gabriel Yap,CFA was an eminent stockbroker who retired from stockbroking in 2009 to devote himself to philanthropy to help the needy, poor and handicap globally. He has donated and assisted Charities Aid Foundation, Australia (CAF), a not-for-profit donor funds management business.  

Mr Yap is also Executive Chairman of GCP Global Pte Ltd, an investment firm that invest in both direct capital markets, bonds, real estate, commodities, foreign exchange and builds businesses. Mr Yap appears regularly for the TV media like Channel News Asia and Bloomberg and radio channels like FM93.8 for their various investment programs.

Previously Mr Yap has also lectured at renowned government institutions like the SEASEN Course for the Monetary Authority of Singapore and at AsianDevelopment Bank. Mr Yap has also lectured at financial institutions like the Stock Exchange of SingaporeInstitute of Banking and Finance, the Institute of Certified Public Accountants, the Singapore Institute of Management and the Securities Investors Association of Singapore.

In 2010, the venerable Reader's Digest magazine created the Money Savvy column in their magazine, helmed by Mr Yap who writes on all things finance and answers questions from the magazine's subscribers.

Mr Yap presently splits his time between Melbourne, Europe and Singapore.