There are many ways to find investment ideas. Some useful methods are to screen for stocks or to look at a list of stocks near their 52-week lows to sieve out potential bargains. Studying what institutional investors have been buying or selling is another avenue. Institutional investors are typically large investment organisations, such as hedge funds, mutual funds, unit trust companies, sovereign wealth funds, insurance companies and so on. These investors tend to possess vastly greater resources than individual investors like you and me when researching stocks. Hence, it may be useful to keep a close eye on what they…
There are many ways to find investment ideas. Some useful methods are to screen for stocks or to look at a list of stocks near their 52-week lows to sieve out potential bargains. Studying what institutional investors have been buying or selling is another avenue.
Institutional investors are typically large investment organisations, such as hedge funds, mutual funds, unit trust companies, sovereign wealth funds, insurance companies and so on. These investors tend to possess vastly greater resources than individual investors like you and me when researching stocks. Hence, it may be useful to keep a close eye on what they are doing, as a way to generate ideas.
In this article, I will look at three Singapore stocks that were among the top 10 shares that saw the highest net purchases in dollar value by institutional investors in the month of September 2018. They are: M1 Ltd (SGX: B2F), Singapore Technologies Engineering Ltd (SGX: S63), and Sembcorp Industries Limited (SGX: U96).
Source: Singapore Exchange; SGX Stock Facts
The company with the highest net purchases in its shares by institutional investors last month was Singapore’s smallest operational telco, M1. In its 2018 second quarter earnings update, M1 reported that its revenue for the quarter was up 1.7 % year-on-year to S$253.2 million because of stronger performances in the Mobile Services and Fixed Services businesses that offset weaker performances from the International Call Services and Handset Sales businesses. M1’s higher revenue led to a 2.1% increase in net profit to S$37.2 million for the quarter.
In its latest earnings update, M1 also gave useful comments on the outlook for its business:
“M1 is committed to stay at the forefront of technology advancements and has embarked on early multivendor 5G trials, including Singapore’s first end-to-end 5G live trial in June 2018. This could provide insightful learning crucial to the successful development of relevant 5G services. With our foundation of dense cell grid and advanced narrow band Internet-of-Things network, we are well positioned to harness exciting new capabilities and support highly reliable and responsive applications on our network.
The Smart Nation initiatives will accelerate the digitalisation and transformation of businesses. By leveraging on our scaled up ICT and digital capabilities, we will be able to capture new opportunities from Smart Nation initiatives and support businesses to leverage digital technologies.
For the full-year 2018, we estimate capital expenditure to be around S$120 million. Based on current outlook and barring any unforeseen circumstances, we estimate second half profits to be lower in view of market seasonality and impending new competition.”
Investors may want to note that in late September, two of M1’s major shareholders – Keppel Corporation Limited (SGX: BN4) and Singapore Press Holdings Limited (SGX: T39) – made a collective offer to acquire shares of M1 that they do not yet control.
The second company with significant institutional buying in September was Singapore Technologies Engineering Ltd (SGX: S63), or ST Engineering in short. As a quick introduction, ST Engineering is an engineering conglomerate with four distinct business segments, namely, Aerospace, Electronics, Land Systems, and Marine.
For 2018’s second quarter, ST Engineering experienced a 3.3% year-on-year decline in revenue to to S$1.65 billion. But, it managed to grow its profit attributable to shareholders for the quarter by 10.0% to S$117.5 million. All four of ST Engineering’s business segments, except Land Systems, posted an increase in profit.
The engineering conglomerate’s order book stood at S$13.4 billion at the end of 2018’s second quarter, flat sequentially, and a small decline from the S$13.5 billion seen a year ago. ST Engineering expects S$2.7 billion of its order book to be delivered for the rest of 2018. As of 30 June 2018, the company’s total debt stood at S$1.02 billion while its cash and investments stood at S$1.17 billion, giving it a net cash position of S$0.15 billion.
Here’s a succinct statement on ST Engineering’s prospects that the company shared in its latest earnings update:
The Aerospace and Electronics sectors delivered strong 2Q2018 earnings. The Group’s order book remained robust at $13.4b, contributed by new orders including those in the Smart City spaces. On the whole, the Group is tracking well on its strategy of strengthening the core as well as actively pursuing growth opportunities in defence exports and Smart City projects.
Last but not least, there’s Sembcorp Industries, a conglomerate with three major business segments: Utilities; Marine; and Urban Development. The Marine segment’s contribution comes mainly from Sembcorp Industries’ 61% stake in Sembcorp Marine Ltd (SGX: S51).
For the quarter ended 30 June 2018, Sembcorp Industries’ revenue improved by 46.6% year-on-year to S$3.34 billion. But, profit from operations for the quarter was down by 13% to S$192.1 million, with the Marine segment being the primary dragging force. Still, Sembcorp Industries’ net profit attributable to shareholders surged 46.8% year-on-year to S$81.9 million mainly because of lower finance costs, higher share of results of associates and joint ventures, lower tax expenses, and a significant decline in profit attributable to non-controlling interests (from a S$2.9 million profit to a loss of S$17.3 million). As of 30 June 2018, Sembcorp Industries’ net debt position stood at S$8.3 billion, up from S$7.3 billion in 2018’s first quarter.
Here’s a brief comment by Sembcorp Industries on its outlook:
“The market environment is expected to remain challenging in 2018. While a broader based global recovery is underway, rising trade and geopolitical challenges could potentially increase volatility and dampen global growth. The group is confident that it has the right strategies and capabilities for the future”
Looking at what institutional investors are doing could be a useful tool in your toolkit when sourcing for investment ideas. But do note that the information presented here is by no means a recommendation to take any action on the stocks mentioned. Instead, it should be viewed only as a useful starting point for further research.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.