STI falls but manufacturing stocks rally

Singapore's Straits Times Index (STI) might be correcting from technically overbought levels, but electronics and semiconductor-related manufacturing stocks are rallying hard.

Companies such as Frencken Group (1.7 per cent to $0.585), Hi-P International (5.3 per cent to $1.785), Micro-Mechanics (9.4 per cent to $2.03), Valuetronics (8.5 per cent to $1.025), Venture Corp (2 per cent to $18.90), and UMS (3.9 per cent to $1.065) continued to rally to or near their recent highs.

This is despite the STI's fall of 10.47 points, or 0.31 per cent, to 3,375.97 points.

Among the larger-cap stocks, what stood out was SembMarine rising 3.5 per cent to $1.915, and OCBC continuing to rally (1.2 per cent to $11.94) after reporting strong results last week.

With many manufacturing companies reporting earnings in the coming weeks, stock prices are rallying on high expectations. Yesterday, Micro-Mechanics rose after reporting net profit of $5.2 million for its first quarter ended Sept 30, up 53 per cent from a year ago. Revenue was up by almost a third to $17.7 million.

The growth is tracking last week's numbers from the Economic Development Board, where Singapore's manufacturing output increased by double-digit terms in September, driven by a 33 per cent output growth in the electronics cluster.

Micro-Mechanics bulls can take note that share prices above $2 imply a forward price-to-earnings (PE) ratio of 14 times, assuming its first-quarter bonanza can be sustained.

"We believe the semi-conductor industry's robust growth during 2017 may indicate a prolonged period of stronger industry growth as chips become increasingly used in nearly every aspect of modern life," Micro-Mechanics said.

Micro-Mechanics supports other firms in the highly specialised electronics value chain. For guidance, and deeper insights, investors will do well to track its larger customers, such as Hong Kong-listed ASM Pacific Technology and US-listed Kulicke & Soffa.

Kulicke & Soffa is trading at 12 times expected earnings, while ASM Pacific is at about 18 times.

In Singapore, contract manufacturing giant Venture is trading at a forward multiple of around 20 times, a historic high in expectations not seen in at least 12 years. Venture is reporting results on Friday.

Another firm with upcoming results, Valuetronics, is trading at forward earnings multiples of 13 times, versus its 10-year average of 5.4 times.

Meanwhile, investment products online distribution firm iFAST Corporation rallied 4.8 per cent to $0.985 after announcing its third quarter financial results on Saturday. (The company counts Singapore Press Holdings, which owns The Business Times, among its shareholders.)

In a report yesterday, DBS Group Research hailed iFAST's "significant improvement". But the company is still hovering near its end-2014 initial public offering (IPO) price of $0.95.

Among other small-cap stocks, the day's trading was dominated by Catalist-listed Israel-based startup incubator The Trendlines Group, which ended up 1.7 per cent to $0.175 on 42 million shares traded.

It completed a placement last week that raised $13 million for working capital.

Finally, Monday also saw the launch of the Lion-Phillip S-Reit ETF, the first exchange-traded fund (ETF) with a basket of purely Singaporean real estate investment trusts (Reits). It is also the third Reit ETF to list on the Singapore Exchange.

Testament to the strong fund-raising environment and a perceived upturn in the Singapore property market, the ETF had raised over $100 million, exceeding initial targets of $40-50 million. It closed at $1.023, 2.3 per cent above its issue price of $1 a unit.

This article appears in The Business Times today. For full listings of SGX prices, go to http://btd.sg/BTmkts