Manufacturing stocks making up for losses

With the release of the latest economic statistics, expectations for Singapore's growth this year have shifted from cautious optimism to quiet confidence.

Last week, the Ministry of Trade and Industry (MTI) improved its gross domestic product growth forecast to a range of 2 per cent to 3 per cent, narrowed from the 1 per cent to 3 per cent at the start of the year.

The figures were sparked by the "robust pace" of growth in the manufacturing sector, which rose 8.1 per cent year-on-year in the second quarter of this year and 8.5 per cent in the previous quarter, said MTI.

The sector also expanded for 11 consecutive months, according to the latest figures from the Purchasing Managers' Index released earlier this month.

Likewise, the five biggest manufacturing stocks on the Singapore Exchange (SGX) - ST Engineering, Yangzijiang Shipbuilding, Venture Corporation, Sembcorp Marine and Haw Par Corporation - have seen positive results, even outperforming the strong showing of the Straits Times Index (STI) in the year-to-date, noted an SGX report last week.

The five stocks - which span the industrials, information technology and health sectors - had a dismal performance last year, with an average of a 1.9 per cent price decline.

But they all saw a rebound this year, noted SGX.

In the first half, their prices jumped an average of 24.9 per cent. From the second half of this year to date, they saw another 16.8 per cent gain.

According to an SGX report on Tuesday, Singapore's 20 largest capitalised stocks that represent the manufacturing segments of the capital goods industry averaged a 37 per cent price gain in the year-to-date, compared to an average of 11 per cent gain for the 20 largest of these stocks listed across Asia-Pacific. But investors should also note that the five companies, which all recently reported their earnings, have presented mixed returns.

For the first half of this year, Sembcorp Marine reported diluted earnings per share (EPS) of 2.16 cents, down 32 per cent year-on-year.

ST Engineering also reported a lower diluted EPS of 6.91 cents, down 10 per cent year-on-year.

In the same period, Yangzijiang Shipbuilding, however, reported diluted EPS of 36.21 yuan cents, a whopping 61 per cent gain year-on-year.

Venture Corporation also reported a much higher diluted EPS of 41.6 cents, up 46 per cent year-on-year.

Last week, Haw Par Corporation announced its diluted EPS of 31.5 cents, up 10.5 per cent year-on-year.

Uneven returns aside, the companies have all seen expansion in different ways over the past year.

"Common sub-themes of the five stocks included either increased capital expenditure, research and development (R&D) or reinforced brand equity over the past 18 months," noted SGX.

R&D

In fact, Venture Corporation, the largest information technology stock by market capitalisation on the SGX, attributed its recent results to its "ability to create and capture value through strong R&D initiatives and programmes".

Another example is Yangzijiang Shipbuilding, which specialises in dry bulk carriers and is a constituent of the STI.

It turned the tides, moving from being the worst performing stock last year to the best performer this year.

Its stocks have rallied a powerful 95.7 per cent in the year-to-date, after recording a 25.9 per cent decline last year.

Despite the slowdown in the maritime sector, the Chinese company concentrated on R&D efforts over two years, working on key design and manufacturing technologies of ultra large containerships.

Likewise, Sembcorp Marine, which operates shipyards in Singapore, India, Indonesia, the United Kingdom and Brazil, also invested in innovation in the challenging environment.

In April, it won an Outstanding Maritime R&D and Technology Award at the Singapore International Maritime Awards for its highly energy-efficient and environment-friendly ballast water treatment solution.

ST Engineering, another STI constituent and which gained 18.3 per cent in the year-to-date, said last week that it will soon complete an acquisition of Aethon, a US-based robotics company that will provide the group with autonomous mobile robots for deployment in the healthcare, industrial and hospitality sectors.

On the other hand, Haw Par Corporation used more traditional methods to boost sales.

In its recent results, it announced a 7.3 per cent jump in profits on the back of growing demand for its Tiger Balm products in the second quarter.

This comes after the company increased its distribution and marketing expenses by 18.1 per cent.

In spite of the companies' efforts, investors should also note that the unpredictable global economy remains a concern for the manufacturing sector as well as these companies.

In a statement, MTI noted that although the global economic recovery is expected to continue on a firm footing for the rest of the year, downside risks - such as anti-globalisation sentiment as well as tightening monetary policies in China and the United States - still remain.

"Nonetheless, the potential for these downside risks to have a significant impact on global growth this year has eased compared to three months ago," added MTI.