As 2022 approaches the end, it is an excellent time to look back at our portfolio and assess how it has performed. By doing so, we can reflect on our actions and devise a game plan for 2023.
This article will concentrate on the performance of blue chip stocks in Singapore. These stocks are closely related to the constituents of the Straits Times Index, a market capitalization-weighted index. Because of their size, they are often regarded as a safer option for riding out economic uncertainties.
Nevertheless, there are still overperformers and underperformers. This article will uncover why they have performed as such this year.
Can’t read now? Grab the “Best & Worst Performing Singapore Blue Chip stocks (2022 report)” here
Best & Worst performing Singapore Blue Chip Stocks (2022)
| Best Performers | |||
| Stock name | Ticker | YTD return | Sector |
| Sembcorp Industries Ltd | SGX: U96 | 68% | Industrials |
| Keppel Corporation Ltd | SGX: BN4 | 43.8% | Industrials |
| Jardine Cycle & Carriage Ltd | SGX: C07 | 39.3% | Consumer Discretionary |
| Worst Performers | |||
| Keppel DC REIT | SGX: AJBU | -28.7% | Real Estate |
| SATS LTD | SGX: S58 | -26.7% | Industrials |
| Frasers Logistics & Commercial Trust | SGX: C07 | -25% | Real Estate |
Top 3 Singapore Blue Chip Performers
Sembcorp Industries Ltd, Keppel Corporation Limited, and Jardine Cycle & Carriage Ltd are the top SG blue-chip performers.
Two of the three are from the industrial sector, which has significantly benefited from the macroeconomic environment of elevated energy prices.
1) Sembcorp Industries Ltd (+68.0%)
Sembcorp Industries, a leading energy, and urban solutions provider, tops the list as the best performer for 2022. This comes after years of disappointing results, with its fortune turning around after the demerger of its marine division and improving energy industry post-pandemic.
Along with the 2020 demerger, Sembcorp Industries has reiterated its commitment to expand its renewable energy portfolio, which includes wind, solar, and energy storage, in major markets such as Singapore, Vietnam, China, India, and the United Kingdom. This is consistent with the global trend of clean energy and decarbonization, and net profit for its renewables business increased from $24 million in the first half of 2022 to $76 million.
Overall, the company has also fared well, with its 1H2022 net profit before exceptional items jumping by 94% to $490 million as contributions from both renewables and traditional energy segments grew due to higher electricity prices.
Prospective future
Looking ahead, underlying profits for the second half of the year (announcing in February 2023) are expected to be strong, and the full-year result is expected to be much higher than in 2021.
Nonetheless, many hurdles remain for the organization going forward. Sembcorp Industries’ profitability heavily depends on energy prices, while the global economic picture remains unpredictable. With the continued geopolitical tension and the potential of global recession next year, Sembcorp Industries’ performance might be impacted negatively.
For investors seeking a beam of hope, the company’s continuous effort to transform its portfolio from brown to green is progressing very well. Sembcorp has been implementing its strategic transformation plan for less than a year, but it has accomplished a great deal. Gross renewable capacity has been increasing, and the 2025 target is well within reach.
2) Keppel Corporation Limited (+43.8%)
Keppel Corporation focuses on four key areas: energy & environment, urban development, connectivity, and asset management.
According to Keppel Corp’s most recent results, sales, including discontinued operations, rose 24% to S$6,836 million in the first nine months of 2022. Excluding discontinued operations, sales from Continuing Operations was S$5,016 million in 9M 2022, a 15% increase. This has been underpinned by increased revenue inflows from Keppel Infrastructure, Keppel Offshore & Marine, M1, and Keppel Capital.
Vision 2030
Keppel Corporation, like Sembcorp, benefited greatly from the macroeconomic environment as oil prices stayed high; nonetheless, its work toward the Vision 2030 targets may have contributed a little.
Keppel’s asset monetization initiative was launched in September 2020, and the Group has accomplished close to S$4.4 billion of its three-year target of S$3—S$5 billion. To date, approximately S$1.4 billion in asset monetization has been announced.
In connection with the proposed Offshore & Marine (O&M) transactions, Keppel has also updated the agreement. Instead of combining with Keppel Offshore & Marine (KOM) to form a new entity, Sembcorp Marine will instead purchase KOM in exchange for new Sembcorp Marine shares. These new conditions are intended to simplify implementation and, as a result, give greater deal certainty and hasten the conclusion of the planned merger of Keppel O&M and Sembcorp Marine, allowing Keppel to accelerate the execution of its Vision 2030 strategy.
All of these moves speak favorably for the corporation, and 2023 may be the year to see if their new business strategy works out.
3) Jardine Cycle & Carriage Ltd (+39.3%)
Jardine Cycle & Carriage Limited is the Jardine Matheson Group’s investment holding entity in Southeast Asia. As an investment holding company, the Group invests in a wide range of market-leading businesses focused on urbanization and the expanding consumer class. In total, Jardine C&C has a presence in six countries and eight industries.
The company fared well in its half-year results, announced in July, as it achieved a record half-year underlying profit, owing primarily to improved economic conditions and rising commodity prices.
This performance has continued into the most recent quarter, with the Group stating in November that the company has continued to perform well over the past nine months, demonstrating improvements across all aspects of the portfolio.
As we see, the recovery of Jardine C&C’s company and, thus, its share price is mainly attributable to improved economic conditions and rising commodity prices. Although the corporation is projected to end on a good note in 2023, global economic issues will continue to be a significant concern. If economies begin to enter into recession and consumers start to cut back on their spending, such as automobile purchases, Jardine C&C could be severely impacted in 2023.
Overall, we don’t see many catalysts that could improve JC&C’s share price. It is an uninteresting stock that is easily forgotten. As a result, its future performance is entirely dependent on the economic performance of the South East Asian countries in which it operates; hence, investing in this stock implies that you believe the South East Asian economy will remain robust or thrive in 2023.
Worst 3 Singapore Blue Chip Performers
Two of the three poorest performers are S-REITs, which we discussed previously when comparing how blue-chip Singapore REITs fared. The main reason for their decline is that interest rates have continued to rise and hence hurt their bottom line.
3) Frasers Logistics & Commercial Trust (-25%)
FLCT is ranked third from the bottom. This REIT has 105 logistics and commercial assets spread throughout five major developed countries: Australia, Germany, the United Kingdom, Singapore, and the Netherlands.
FLCT reported a 9.7% and 10.6% decrease in revenue and net property income for the second half of fiscal year 22. The year-on-year declines were mostly due to the selling of Cross Street Currency and lower exchange rates. As a result, its 2HFY22 distribution per unit fell by 2.8%.
That is not to imply that FLCT is terrible. In fact, the portfolio is operationally sound, with a 96.4% portfolio occupancy rate. With a gearing of 27.4%, the company also seems to be the least affected by rising interest rates, as 81.7% of its loans were similarly fixed.
Having said that, it is one of the worst performers because most of its assets are located abroad. As a result, FLCT is not immune to currency risk and is one of the most vulnerable of the blue-chip REITs we examined previously. The AUD, EUR, and GBP’s unfavorable movement against the SGD has had and will continue to hurt FLCT’s NAV and distributable income.
2) SATS LTD (-26.7%)
SATS Ltd. is Singapore Changi Airport’s primary ground handling and in-flight catering provider. Its food solution segment includes airline catering, food distribution, and logistics, and industrial catering, while its gateway services include airfreight, baggage and ramp handling, passenger services, aviation security, cargo, warehousing, perishables handling, cruise handling, and terminal management.
With the reopening of borders, the company has been quite resilient this year, with its share price gradually rising. That said, it is at the bottom of the list because of the proposed acquisitions it announced recently, which we looked into earlier.
In essence, SATs planned to acquire Worldwide Flight Service (WFS), the world’s largest air cargo handling company. This acquisition is extremely strategic, as it allows SATs not only to become a global leader in the aviation service sector but also to diversify revenue and take advantage of synergies.
The issue is that with this acquisition, SATs would incur additional debt. This change in its debt profile may not be ideal, especially in an interest-rate environment. Worse, it had initially announced in its indicative financing plan that it would raise $1,700 million through equity fundraising.
Given that SATs’ market valuation at the time was $4.35 billion, an equity raise of $1.7 billion might well have required each shareholder to cough up over 40% of their total investments in cash to subscribe to the right and prevent dilution. As you can see, this did not sit well with investors, who anticipated substantial dilution and hence dumped their shares.
This collapse was so severe that I suspect the management was caught off guard. A few days after the initial announcement, they had to clarify that the illustration was merely illustrative and did not represent the actual funding arrangement. However, the damage has already been done. Even after SATs published its finalized funding plan on 1 December 2022, the stock had only recovered by 5%.
If you’re interested, the plan is as follows.
- A three-year Euro-denominated term loan of roughly S$700 million from SATS’ major lenders, with an all-in cost of 4.0% to 4.5% per annum.
- A renounceable underwritten rights offering of up to S$800 million.
- S$320 million in cash from SATS’ existing cash balance.
This is undoubtedly more acceptable to investors, but we can still expect some dilution.
Nevertheless, I believe SAT’s acquisition would likely pay off in the long run. However, do not expect it to rebound quickly because it will have to pay off its debt from the acquisition progressively. This might harm dividend investors hoping that the payout will be reintroduced soon, but if you are in it for the long run, you may benefit.
1) Keppel DC REIT (-28.7%)
Finally, Keppel DC REIT dropped the most in the STI component. This REIT owns an income-generating real estate portfolio largely used for data centers and real estate and assets required to support the digital economy.
According to its most recent results, gross revenue climbed by 1.4% year on year for the quarter. This minor gain was due to lower contributions from some Singapore colocation assets (facilities charges including energy expenses and DXC4 provision), the depreciation of EUR, AUD, and GBP against SGD, and the sale of iseek Data Centre.
Nonetheless, distributable income and DPU for the third quarter of 2022 increased by 9% and 5%, respectively, year on year.
On the tenant front, Keppel DC has a portfolio occupancy of 98.6% and a weighted average lease expiry of 8.7 years. This is quite lengthy, especially in an inflationary climate where rent can be constantly increased upwards. The good news is that more than half of its portfolio includes built-in income and rental escalations based on the Consumer Price Index, equivalent indexation, or fixed rate systems.
Overall, Keppel DC REIT has been the hardest hit of the Singapore Blue Chip stocks. The REIT, while appearing resilient, is currently seeing mediocre growth, and given that this REIT was given a high valuation during the pandemic, its collapse today is also a reevaluation by investors who may have overvalued it back then.
Moving forward, some key questions to be answered include whether Keppel can handle rising interest rates and utility costs. Of which, we have heard from the management that the company was able to pass more than 90% of its electricity costs to colocation clients significantly and have even locked in 2-year fixed rate contracts for those assets in Singapore.
Can’t read now? Grab the “Best & Worst Performing Singapore Blue Chip stocks (2022 report)” here
What to expect in 2023?
Many equities have struggled in 2022, including some of the blue chips we’ve seen above. Those that performed well primarily came from the energy industry, where such companies were able to benefit from higher oil prices. The worst performers, on the other extreme, are notably REITs, which have been adversely affected by rising interest rates.
As 2022 comes to an end and a new year approaches, we should evaluate how we can reorganize our portfolio. Entering 2023, we may face a new set of macroeconomic factors, such as slower growth/recession and elevated interest rates. Should this happen, the leaderboard may change, and let us hope your stocks are at the top when we review it a year from now.
But don’t just take my word for it, hear from other active investors as they share how they’ll investing in 2023.
