STI ETF a.k.a. SPDR Straits Times Index ETF

[weijian]

Hi Weijian,

You were right in terms of the addition of Keppel DC REIT.

I guess that Sembcorp Industries is still likely to be the next to go out when the next review happens.

hi Shrivathsa,

I was predicting that Keppel DC REIT would replace 1 of the SATS/Semb Ind/CDG, but it was added due to Capital land REITs merging instead, so I wasn't really "right" per say.

Now all these 3 companies seem to be recovered a bit - Semb Ind/CDG have announced some evolution plans and SATS has vaccination to thank for. But nonetheless, in current low interest rate environment and the quest for bigger AUM, those REITs in the reserve list will just continue to acquire new assets via rights/private placement/debt and be ever ready to replace those 3, if any of them stumble.

That said, unless SGX convinces Grab to do a secondary listing here, else STI ETF continues to be a banker + landlord.

[r0n]

Hi Weijian,

You were right in terms of the addition of Keppel DC REIT.

I guess that Sembcorp Industries is still likely to be the next to go out when the next review happens.

hi Shrivathsa,

I was predicting that Keppel DC REIT would replace 1 of the SATS/Semb Ind/CDG, but it was added due to Capital land REITs merging instead, so I wasn't really "right" per say.

Now all these 3 companies seem to be recovered a bit - Semb Ind/CDG have announced some evolution plans and SATS has vaccination to thank for. But nonetheless, in current low interest rate environment and the quest for bigger AUM, those REITs in the reserve list will just continue to acquire new assets via rights/private placement/debt and be ever ready to replace those 3, if any of them stumble.

That said, unless SGX convinces Grab to do a secondary listing here, else STI ETF continues to be a banker + landlord.

Grab or Sea are both good candidates for SGX to attract, being headquartered in Singapore and having market capitalisation in the billions. The odds of that happening (i.e. secondary listing on SGX) is still extremely low.

[weijian]

Low but not impossible. There is a higher chance for Grab though..

Spore is a Bantamweight, and performing at Lightweight (2 classes above). It is trying to go the next class Welterweight - we should all be cheering for it, rather than bring it down by comparing with US/HK markets.

Grab mulls secondary listing in Singapore home market: sources

GRAB Holdings, South-east Asia's ride-hailing to delivery giant, is considering a secondary listing in its home market of Singapore after completing a Nasdaq listing via a US$40 billion SPAC merger, three sources familiar with the matter said.

Listing on Singapore Exchange (SGX) would enable Grab to have an investor base close to where its regional business is based, the sources said, potentially offering its customers, drivers and merchant partners easier access to trade its shares.

https://www.businesstimes.com.sg/compani...et-sources

[weijian]

Unfortunate news as a local and familiar name is replaced by a "foreign talent".

Although we know CDG was always in danger (unlike SATS or Sembcorp which have rebounded off Covid lows in March2020), but it is a surprise to see Emperador, a secondary listing in mid July, replacing it. If we consider market cap, Nio (another company secondary listed in May2022) is ~4x bigger than Emperador but it did not replace CDG. So besides market cap, it seems that there are other factors like trading liquidity been considered.

Straits Times Index (STI) quarterly review

FTSE Russell announces that there will be one change to the constituents of the Straits Times Index (STI),
following the September 2022 quarterly review. Emperador has been added to the STI and ComfortDelGro has
been removed from the index.

https://links.sgx.com/FileOpen/20220901_...eID=730635

[btws548]

Unfortunate news as a local and familiar name is replaced by a "foreign talent".

Although we know CDG was always in danger (unlike SATS or Sembcorp which have rebounded off Covid lows in March2020), but it is a surprise to see Emperador, a secondary listing in mid July, replacing it. If we consider market cap, Nio (another company secondary listed in May2022) is ~4x bigger than Emperador but it did not replace CDG. So besides market cap, it seems that there are other factors like trading liquidity been considered.

Straits Times Index (STI) quarterly review

FTSE Russell announces that there will be one change to the constituents of the Straits Times Index (STI),
following the September 2022 quarterly review. Emperador has been added to the STI and ComfortDelGro has
been removed from the index.

https://links.sgx.com/FileOpen/20220901_...eID=730635

Indeed, this is surprising. Seems like the SGX Mainboard has too many entities in similar sectors or perhaps even similar geographic locations. Otherwise, a relatively new listing (while renowned in its own country but perhaps relatively unknown elsewhere) would not have been included in the index so soon.

[weijian]

Another landlord replaces an operating (holding) company, while 4 out of the 5 on the reserve list are landlords. With the recent 52k monthly rental for a HDB shoplot making the news, we can all agree that it is better to be landlord squeezing rents than operating a business in Spore, isn't it?

The one been replaced Jardine C&C, is however surprising though. While Jardine C&C hasn't been enjoying good times but its market cap of 7bil is still much higher than the smallest STI constituents of 3-4bil.

Keppel DC Reit to replace Jardine C&C on STI

Keppel DC Real Estate Investment Trust (Reit) will replace Hong Kong-based conglomerate Jardine Cycle & Carriage (C&C) on the benchmark Straits Times Index (STI), following a quarterly review.

Therefore, Internet service provider NetLink NBN Trust will replace Keppel DC Reit on the STI’s reserve list, said the index’s administrator, FTSE Russell, in a bourse filing on Thursday (Jun 5). The other four companies on the reserve list are CapitaLand Ascott Trust, ComfortDelGro, Keppel Reit and Suntec Reit.

https://www.businesstimes.com.sg/singapo...ine-cc-sti

[Shrivathsa]

Keppel DC REIT is probably one of the very few well managed REITs by Keppel (Please see the performance of Keppel REIT, and Keppel Pac Oak, both are in the dumps) so guess this rewards them as there is far higher interest in Keppel DC . That normally is a 20% inflation in value to be in STI. Guess we will probably see JCC reach the levels of sub 20 by year end. Valid point WJ, landlords are better than opco

[weijian]

In most cases, ordinary dividends are retained earnings that leave the company, reducing book value and forsaking the potential for compounding those retained earnings. It will be a drag on market cap if everything else (investors' valuation and risk free rates) is kept constant. Therefore, I am not sure why this well-respected author mixed up between market cap and returns. Market cap determines the STI Index while returns are from capital gains (partly a result of market cap increases) + dividends.

Unless the 3 banks are able to churn out a larger portion of non-interest income, else their current "elevated" BV multiple may not escape a mean reversion. For index REITs, their sponsors will continue to inject new assets and so market cap growing at a mid single digit is a no brainer unless interest rates get prohibitively high. For Keppel, JMH and Singtel, their on-going transformation involves reducing the size of their balance sheet via divestments/distributions to shareholders. But the market is expected to re-rate them higher if they are successful, and so the net result should be a higher market cap but maybe not by too much. Finally, SGX and ST Eng are currently enjoying the fruits of their successful efforts and if they manage to continue their good work into the next decade, earnings growth will drive market cap growth. That of course, is not an easy feat.

In summary, growing the market cap of this 10 companies at ~5% annualized CAGR for the next 15 years looks like a stretch to me. But besides solely depending on this 10 companies (organic growth), there is still the M&A route isn't it? If some marque GLC companies are listed on SGX and/or some of the "mega caps" Spore-HQ/incorporated companies (eg. SEA/Grab Holdings) does a secondary listing, then STI@10,000 might just turn out to be readily achievable!

STI at 10,000 by 2040: Which companies will do the heavy lifting?

The Straits Times Index just hit an all-time high above 4,400 this month. Then came the bold prediction by DBS Group’s research: 10,000 by 2040. Here’s the uncomfortable truth. Reaching that target will depend almost entirely on a select group of stocks. THE fate of Singapore’s stock market for the next 15 years rests on just 10 companies. That’s not hyperbole;  it’s math. But everyone’s asking the wrong question. It’s not whether the STI will hit 10,000; ask instead whether the underlying businesses can create enough value over the next 15 years to get there.

Let’s start with some math. Assuming the STI ends 2025 at around the 4,400 level, reaching 10,000 by 2040 would require an annual return of about 5.6 per cent. That’s achievable. According to DBS’ research, the index’s average total returns (including dividends) over a rolling 15-year period since 2000 have ranged between 6 per cent and 13.3 per cent.

The good news is that the banks have delivered. Over the past decade, all three grew their book value by between 5.7 and 6.1 per cent annually. Throw in their average dividend yield (excluding special dividends) of around 4.7 per cent, and you’re looking at total returns north of 10 per cent per year. That’s well above the 5.6 per cent target.

Over the past decade, Singtel’s earnings per share grew 4.8 per cent annually. Add its 4.6 per cent average dividend yield, and you’re looking at returns above nine per cent – comfortably beating the required growth.

The pandemic was hard on both Reits, especially CICT with its retail and office exposure. Then, rising rates stalled their recovery. Despite the headwinds, CICT has fought back impressively – delivering 6.4 per cent annual DPU growth since its 2020 low. CLAR’s DPU growth, however, was a mere 1.6 per cent.

SGX is projecting its annual dividend to jump from S$0.375 in FY2025 to S$0.525 by FY2028. That’s a 40 per cent increase in three years. Not to be outdone, STE is promising a near-six per cent dividend bump for 2025, followed by incremental increases equal to one-third of profit gains.

Keppel is betting on transformation, becoming a global asset manager with S$200 billion under management.  Jardine Matheson is playing the portfolio game through DFI Retail, HongKong Land and Jardine Cycle & Carriage. But step back from these individual stories and you’ll spot the pattern. Every single path to STI 10,000 is paved by dividends.

https://www.businesstimes.com.sg/wealth/...vy-lifting

[Big Toe]

Completely pointless to predict and the very long term is always up. Looking back, the last time STI was under 2000 was in 2008/2009. So it took about 16 years to >double. So DBS agar agar timeline prediction is somewhat similar to what happened in the past.

[weijian]

Looking back, the last time STI was under 2000 was in 2008/2009. So it took about 16 years to >double. So his agar agar timeline prediction is somewhat similar to what happened in the past.

Hi BigToe,

STI under 2000 (2008/2009) was on a back of a deep recession triggered by GFC2008. So we could reasonably assume valuations were depressed. STI at 4500 (2025) has been lifted by a few tailwinds and the biggest component stock DBS has a book value multiple that is almost similar to US's biggest bank JP Morgan Chase. So while it is pointless to predict the next 15 years, both situations probably don't have the same context to start with.

On another note, I read somewhere a comment that the Spore government and its agencies have a strong ability to be able to execute. So with the current direction being set on reviving the equity market so that it doesn't stay as the "sick man" of Spore capital markets, participants are been dealt with favorable cards.