Battered STI counters spur talk of shuffle in next index review

Singapore

SINGAPORE'S blue chip stocks were not spared in the stock market rout on Monday - 28 out of the 30 components on the ST Index ended the day in the red. Indeed, the sharp escalation in the US-China trade war over the weekend pushed five of the counters to multi-year lows.

Carmen Lee, head of OCBC Investment Research, noted that trade tensions were the main factor behind the sell-offs in equities. With the global outlook still cloudy, she expects sentiment to stay weak with investors "likely to continue to stay out of the market".

Hutchison Port Holdings Trust (HPH Trust), which closed one US cent or 6 per cent to 15.7 US cents, is trading at an all-time low. Among the Jardine counters, Dairy Farm International fell US$0.12 or 1.7 per cent to US$6.80, a three-year low.

Singapore Airlines (SIA), which edged down S$0.03 or 0.3 per cent to S$8.86, registered a new low since Q1 2009. SIA is vulnerable to trade-related issues, which have dented air freight and passenger demand. Moreover, the grounding of the Boeing 737 MAX 8 fleet has also disrupted its operations and pace of expansion.

Its management will "actively capture revenue opportunities and exercise cost discipline to boost profitability in this challenging macroeconomic environment", the national carrier said in its Q1 FY2019 earnings report.

Like SIA, Sembcorp Industries, down $0.08 or 3.6 per cent to S$2.13, also closed at a low since Q1 2009. Singapore Press Holdings (SPH), which publishes The Business Times, retreated S$0.05 or 2.5 per cent to S$1.99, an over 20-year low.

Andy Sim, DBS Group Research's head of Singapore equity research puts the recent share price performance down to "a mixture of overall market sentiment, coupled with the earnings prospects of the company, as can be seen from latest earnings and dividend trends".

SPH chief executive officer Ng Yat Chung told BT that despite global sentiment being hit by trade tensions, Brexit worries and protests in Hong Kong, SPH will "continue to execute our media transformation strategy, grow our recurring income and diversify our revenue streams".

"We review our existing businesses and investments regularly with a view to recycling capital and enhancing capital management to deliver sustainable shareholder returns."

With market capitalisation of firms affected by slipping share prices, analysts think a couple of companies could be replaced in upcoming reviews of the STI.

STI constituents need to meet three criteria to avoid being dropped from the index.

First, they need to maintain a market cap that falls within the top 40 on the Singapore bourse.

The second is a liquidity requirement. For at least 8 of the 12 months prior to a review in March or September, a counter's median daily trading volume per month must be at least 0.08 per cent of the shares in issue.

Lastly, the free float of securities must be greater than 15 per cent.

KGI Securities head of research Joel Ng said HPH Trust is a "prime candidate to be replaced in the next review". It is currently last among STI firms by market cap (US$1.4 billion) and has relatively low daily liquidity, he added. DBS's Mr Sim also acknowledged that possibility though it would likely be down to HPH Trust's market cap.

Dairy Farm, added to the STI in Sept 2018 in place of telco StarHub, could be a candidate in the near future. Mr Ng said: "Its liquidity since June has been lacklustre, and might not meet liquidity requirements."

SPH, the STI's 29th by market cap (S$3.2 billion) is still well within the top 40 on the Singapore bourse by that measure and is unlikely to be a candidate for now, Mr Sim and Mr Ng said.

In the event that companies are dropped from the STI, those in the reserve list, which comprise of the five highest ranking non-constituents of the STI by market cap, will be added in order of size.

The five that make up the reserve list are all real estate investment trusts (Reits): Mapletree Commercial Trust, Mapletree Logistics Trust, Suntec Reit, Mapletree North Asia Commercial Trust and Keppel Reit are currently in the list.