SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

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<ul>
<li>
Following the heightened volatility in global oil markets that saw Brent Crude Oil close above US$120 over two sessions (7-8 Mar), global markets have rebounded. Since 8 Mar, the STI has generated a 6.0% total return, with global bank stocks rebounding 6.5%, and DBS, OCBC and UOB outperforming with an average 10.3% gains. 
	 </li>
	<li>
The combined quarterly Net Interest Income of DBS, OCBC and UOB amounted to S$5.31 Bn in 4Q21, which was up 3% QoQ and 5% YoY, remaining above S$5.0 Bn throughout 2020 and 2021 amid low interest rates after peaking at S$5.75 Bn in 3Q19. Generally banks maintain positive correlations in net interest income to USD rates &amp; loan growth. 
	 </li>
	<li>
While the Mar 16 FOMC 25bps hike was built into expectations, the week saw CME FedWatch expectations for a target band of 200bps-225bps by the end of 2022 increase to 42% from 17%. This would represent another seven hikes of 25 bps each in 2022. 
	 </li>
	<li>DBS, OCBC and UOB rank #2, #6 and #7 largest weights of the FTSE Developed APAC ex-Japan Sustainable Yield Index which tilts towards the financial and operating strength of stocks with specific emphasis on companies with strong balance sheets and the ability to generate cash flow, rather than extreme high yields.</li>
</ul>
 

Amidst inflation concerns, the Ukraine crises and the emergence of the Deltacron variant, global stocks have gained 0.6% over the first three weeks of March, with Asia Pacific stocks declining 1.9%. However, with volatility notching higher, global and regional stocks were down 5.7% and 5.9% respectively in March through to 8 March, before rebounding 6.6% and 4.3% respectively from 8 March through to 18 March. Over these eight sessions the price of oil has stabilised, after Brent closed above US$120/bbl for the two sessions spanning 7 and 8 March. Nonetheless, this month has thus seen 30-day Straits Times Index (STI) annualised volatility return to +13% levels last seen in August 2021.  DBS Group Holdings (DBS), Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank (UOB) together comprise 45% of the STI. The volatility in early March saw the trio erase their 2022 year-to-date gains, to average flat returns by the close of 8 March. Since 8 March, the trio have averaged 10.3% gains, outpacing global banks which have gained 6.5% over the period. Since 8 March, UOB, DBS and OCBC ranked #1, #2 and #4 respectively among the STI’s strongest performers while drawing a combined S$100 million in net institutional inflows. Total net institutional inflow for the trio is now at S$476 million for the 2022 year through to 18 March, with the trio averaging 10.4% gains.

<table class="table table-striped"><tbody>
<tr>
<td>
			Stock
			</td>
			<td>
			Code
			</td>
			<td>
			Average Daily Turnover 2022 YTD 
			</td>
			<td>
			Net Institutional Flow 2022 YTD
			</td>
			<td>
			2022 YTD Return 
			</td>
			<td>
			8 Mar - 18 Mar Return
			</td>
			<td>
			10-yr Average Annualised Total Return 
			</td>
			<td>
			20-yr Average Annualised Total Return 
			</td>
			<td>
			P/B (x)
			</td>
		</tr>
<tr>
<td>
			DBS
			</td>
			<td>
			D05
			</td>
			<td>
			$190,106,547
			</td>
			<td>
			$24,739,362
			</td>
			<td>
			6.4%
			</td>
			<td>
			11.3%
			</td>
			<td>
			14%
			</td>
			<td>
			9%
			</td>
			<td>
			1.55
			</td>
		</tr>
<tr>
<td>
			UOB
			</td>
			<td>
			U11
			</td>
			<td>
			$131,627,469
			</td>
			<td>
			$267,271,753
			</td>
			<td>
			19.2%
			</td>
			<td>
			13.4%
			</td>
			<td>
			7%
			</td>
			<td>
			8%
			</td>
			<td>
			1.03
			</td>
		</tr>
<tr>
<td>
			OCBC
			</td>
			<td>
			O39
			</td>
			<td>
			$117,362,242
			</td>
			<td>
			$183,903,490
			</td>
			<td>
			5.5%
			</td>
			<td>
			6.3%
			</td>
			<td>
			10%
			</td>
			<td>
			8%
			</td>
			<td>
			1.26
			</td>
		</tr>
<tr>
<td>
			Total
			</td>
			<td>
			 
			</td>
			<td>
			$439,096,258
			</td>
			<td>
			$475,914,605
			</td>
			<td>
			 
			</td>
			<td>
			 
			</td>
			<td>
			 
			</td>
			<td>
			 
			</td>
			<td>
			 
			</td>
		</tr>
<tr>
<td>
			Average
			</td>
			<td>
			 
			</td>
			<td>
			 
			</td>
			<td>
			 
			</td>
			<td>
			10.4%
			</td>
			<td>
			10.3%
			</td>
			<td>
			10.3%
			</td>
			<td>
			8.3%
			</td>
			<td>
			1.28
			</td>
		</tr>
</tbody></table>
Note Aside from the significant weightage in the STI, the trio of DBS, OCBC and UOB make up 20% of the total market capitalisation of all stocks listed on SGX, in addition to 20% of the day-to-day turnover Source: SGX, Refinitiv, Bloomberg (Data as of 18 March 2022).

 

Another key development last week that supported the recent gains of the bank stocks was a more hawkish outlook for US interest rates by the end of 2022. The 16 March FOMC rate hike to a 25bps to 50bps band was built into expectations, however the week also saw CME FedWatch expectations for a target band of 200bps to 225bps increase by the end of the 2022. These expectations rose from 17% to 42%. This would represent another seven hikes of 25bps each in 2022, with the FOMC Fed Chair in an answer to Axios’ Neil Irwin inferring there's seven remaining meetings, and there's seven rate hikes to consider, adding that the FOMC hadn’t made any decisions on front-end loading or going steadily through the year. The Net Interest Income (NII) of the trio of the Singapore banks is general positively correlated to rising USD rates and future rate rises have been a key part of past and present investor expectations. Loan growth is also a key driver of NII. As maintained by the DBS CEO in Feb, DBS maintains NII sensitivity of S$18 million to S$20 million per basis point of USD rates. This implies a 25 basis point rise in USD rates equates to S$450 million to S$500 million of additional NII for the bank. DBS has also seen its proportion of current and savings accounts (CASA) within its total customer deposits grow 17 percentage points over the past two years.  The combined quarterly NII of DBS, OCBC and UOB amounted to S$5.31 billion in 4Q21, which was up 3% QoQ and 5% YoY, and remained above S$5.0 billion throughout 2020 and 2021 amid the lower interest rates, after peaking at S$5.75 billion in 3Q19.  
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<figure>
 <img src='https://api2.sgx.com/sites/default/files/2022-03/Capture_25.PNG' alt='Combined Net Interest Income, SORA' />
 </figure>
 <div class='content-caption'>Combined Net Interest Income, SORA</div>
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<html><body>On the valuation front, the average price-to-book (P/B) ratio (which compares company market values to book values) of the trio is 1.28x, which represents a 4% premium to the median of the top quintile (1.23x) to top quartile (1.21x) of global bank peers by market value. This followed the average P/B of DBS, OCBC and UOB rising to 1.40x, a 10%+ premium to the top quintile (1.26x) and top quartile (1.23x) in mid-February when expectations for a higher 50bps hike at the 16 Mar FOMC were as high as 60%.      
DBS, OCBC and UOB rank as the #2, #6 and seventh largest index weights of the FTSE Developed APAC ex-Japan Sustainable Yield Index which tilts towards stocks not with extremely high yields, but rather the financial and operating strength of stocks with specific emphasis on companies with strong balance sheets and the ability to generate cash flow. Other regionally-listed stocks that rank among the 10 largest constituent weights include Australia &amp; New Zealand Banking Group, Macquarie Group, Commonwealth Bank of Australia, Samsung Electronics, Hyundai Motor, KB Financial Group and CK Hutchison Holdings.</body></html>





Following the heightened volatility in global oil markets that saw Brent Crude Oil close above US$120 over two sessions (7-8 Mar), global markets have rebounded. Since 8 Mar, the STI has generated a 6.0% total return, with global bank stocks rebounding 6.5%, and DBS, OCBC and UOB outperforming with an average 10.3% gains. 
	 
	
The combined quarterly Net Interest Income of DBS, OCBC and UOB amounted to S$5.31 Bn in 4Q21, which was up 3% QoQ and 5% YoY, remaining above S$5.0 Bn throughout 2020 and 2021 amid low interest rates after peaking at S$5.75 Bn in 3Q19. Generally banks maintain positive correlations in net interest income to USD rates &amp; loan growth. 
	 
	
While the Mar 16 FOMC 25bps hike was built into expectations, the week saw CME FedWatch expectations for a target band of 200bps-225bps by the end of 2022 increase to 42% from 17%. This would represent another seven hikes of 25 bps each in 2022.  
	 
	DBS, OCBC and UOB rank #2, #6 and #7 largest weights of the FTSE Developed APAC ex-Japan Sustainable Yield Index which tilts towards the financial and operating strength of stocks with specific emphasis on companies with strong balance sheets and the ability to generate cash flow, rather than extreme high yields.

 

Amidst inflation concerns, the Ukraine crises and the emergence of the Deltacron variant, global stocks have gained 0.6% over the first three weeks of March, with Asia Pacific stocks declining 1.9%. However, with volatility notching higher, global and regional stocks were down 5.7% and 5.9% respectively in March through to 8 March, before rebounding 6.6% and 4.3% respectively from 8 March through to 18 March. Over these eight sessions the price of oil has stabilised, after Brent closed above US$120/bbl for the two sessions spanning 7 and 8 March. Nonetheless, this month has thus seen 30-day Straits Times Index (STI) annualised volatility return to +13% levels last seen in August 2021.   DBS Group Holdings (DBS), Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank (UOB) together comprise 45% of the STI. The volatility in early March saw the trio erase their 2022 year-to-date gains, to average flat returns by the close of 8 March. Since 8 March, the trio have averaged 10.3% gains, outpacing global banks which have gained 6.5% over the period. Since 8 March, UOB, DBS and OCBC ranked #1, #2 and #4 respectively among the STI’s strongest performers while drawing a combined S$100 million in net institutional inflows. Total net institutional inflow for the trio is now at S$476 million for the 2022 year through to 18 March, with the trio averaging 10.4% gains.




			Stock
			
			
			Code
			
			
			Average Daily Turnover 2022 YTD 
			
			
			Net Institutional Flow 2022 YTD
			
			
			2022 YTD Return 
			
			
			8 Mar - 18 Mar Return
			
			
			10-yr Average Annualised Total Return 
			
			
			20-yr Average Annualised Total Return 
			
			
			P/B (x)
			
		


			DBS
			
			
			D05
			
			
			$190,106,547
			
			
			$24,739,362
			
			
			6.4%
			
			
			11.3%
			
			
			14%
			
			
			9%
			
			
			1.55
			
		


			UOB
			
			
			U11
			
			
			$131,627,469
			
			
			$267,271,753
			
			
			19.2%
			
			
			13.4%
			
			
			7%
			
			
			8%
			
			
			1.03
			
		


			OCBC
			
			
			O39
			
			
			$117,362,242
			
			
			$183,903,490
			
			
			5.5%
			
			
			6.3%
			
			
			10%
			
			
			8%
			
			
			1.26
			
		


			Total
			
			
			 
			
			
			$439,096,258
			
			
			$475,914,605
			
			
			 
			
			
			 
			
			
			 
			
			
			 
			
			
			 
			
		


			Average
			
			
			 
			
			
			 
			
			
			 
			
			
			10.4%
			
			
			10.3%
			
			
			10.3%
			
			
			8.3%
			
			
			1.28
			
		

Note Aside from the significant weightage in the STI, the trio of DBS, OCBC and UOB make up 20% of the total market capitalisation of all stocks listed on SGX, in addition to 20% of the day-to-day turnover Source: SGX, Refinitiv, Bloomberg (Data as of 18 March 2022).

 

Another key development last week that supported the recent gains of the bank stocks was a more hawkish outlook for US interest rates by the end of 2022. The 16 March FOMC rate hike to a 25bps to 50bps band was built into expectations, however the week also saw CME FedWatch expectations for a target band of 200bps to 225bps increase by the end of the 2022. These expectations rose from 17% to 42%. This would represent another seven hikes of 25bps each in 2022, with the FOMC Fed Chair in an answer to Axios’ Neil Irwin inferring there's seven remaining meetings, and there's seven rate hikes to consider, adding that the FOMC hadn’t made any decisions on front-end loading or going steadily through the year.  The Net Interest Income (NII) of the trio of the Singapore banks is general positively correlated to rising USD rates and future rate rises have been a key part of past and present investor expectations. Loan growth is also a key driver of NII. As maintained by the DBS CEO in Feb, DBS maintains NII sensitivity of S$18 million to S$20 million per basis point of USD rates. This implies a 25 basis point rise in USD rates equates to S$450 million to S$500 million of additional NII for the bank. DBS has also seen its proportion of current and savings accounts (CASA) within its total customer deposits grow 17 percentage points over the past two years.   The combined quarterly NII of DBS, OCBC and UOB amounted to S$5.31 billion in 4Q21, which was up 3% QoQ and 5% YoY, and remained above S$5.0 billion throughout 2020 and 2021 amid the lower interest rates, after peaking at S$5.75 billion in 3Q19.  



      
    
    Combined Net Interest Income, SORA

On the valuation front, the average price-to-book (P/B) ratio (which compares company market values to book values) of the trio is 1.28x, which represents a 4% premium to the median of the top quintile (1.23x) to top quartile (1.21x) of global bank peers by market value. This followed the average P/B of DBS, OCBC and UOB rising to 1.40x, a 10%+ premium to the top quintile (1.26x) and top quartile (1.23x) in mid-February when expectations for a higher 50bps hike at the 16 Mar FOMC were as high as 60%.       
DBS, OCBC and UOB rank as the #2, #6 and seventh largest index weights of the FTSE Developed APAC ex-Japan Sustainable Yield Index which tilts towards stocks not with extremely high yields, but rather the financial and operating strength of stocks with specific emphasis on companies with strong balance sheets and the ability to generate cash flow. Other regionally-listed stocks that rank among the 10 largest constituent weights include Australia &amp; New Zealand Banking Group, Macquarie Group, Commonwealth Bank of Australia, Samsung Electronics, Hyundai Motor, KB Financial Group and CK Hutchison Holdings.


Banks Lead Global Peers with 10% Rebound From 8 March Lows

SGX Asia Currencies and Commodities Insights

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<ul>
<li>
DBS, OCBC &amp; UOB averaged 4.2% total returns in August, outpacing 1.6% flat median returns of the top quartile of global banking stocks by market value. Similar performance parallels were observed in the 2020 year to 2 Sep, with the trio averaging 18.2% declines, compared to a 20.2% median decline for the top global quartile. 
	 </li>
	<li>
DBS and OCBC remain amongst the top ten constituents of the FTSE Developed Asia Pacific ex-Japan Sustainable Yield Index. Constituents meet financial and operating strength criteria, with emphasis on strong balance sheets and ability to generate cash flow. 
	 </li>
	<li>With the three banks directed to cap FY20 dividend distributions to 60% of FY19 distributions (to bolster ability to swerve credit needs and absorb potential shocks), potential FY20 dividend yields for the three banks could be as high as 3.5% to 4.0%, based on current market prices.  </li>
</ul>
 

Sector-Driven Performances in 2020 YTD 
DBS Group Holdings ("DBS"), Oversea-Chinese Banking Corp ("OCBC") and United Overseas Bank ("UOB") all distributed dividends in August, which saw their average 2.6% price return for the month extended to a 4.2% total return. By comparison, the top quartile of global banking stocks by market value generated a median total return of 1.6% over the month.  As illustrated below, the three banks have outpaced the top quartile of global banking stocks over the past five years.
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<figure>
 <img src='https://api2.sgx.com/sites/default/files/2020-09/Capture_1.PNG' alt='Total Return' />
 </figure>
 <div class='content-caption'>Total Return</div>
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The three banks have gradually increasing quarterly Net Interest Income to above S$4 billion in 2QFY15 and above S$5 billion in 2QFY18, maintaining a combined Net Interest Income of S$5.4 billion in 2QFY20 as discussed <a href="https://www.sgx.com/research-education/market-updates/20200820-bank-structured-warrants-recently-strengthened">here</a>. 
For the 2020 year to 2 September, accommodative monetary policy and economic lockdowns have meant that global banks have had to contend with a sudden reduction in interest rate margins and overall demand for financing, while needing to boost loan provisions, hence uniform drivers have seen parallel performances of banking sectors across the globe. Key Banking Sector themes continuing into the second half of 2020 include bank  abilities to generate income, tier 1 capital to risk-weighted assets and non-performing loan ratios. Note that on the ability to generate income, the top quartile of global banks with an ROE less than 4% generated a median decline of 30% in the 2020 year to date.     Dividend Yields Remain Competitive 
With the MAS recently directing the three Banks to cap dividends at 60% of FY19 levels “to bolster the ability to continue to support the credit needs of businesses and consumers as well as absorb economic shocks” the maximum dividends amounts for FY20 are as follows:

<ul>
<li>As DBS paid S$1.23 in FY19, 60% of this amount is S$0.738 max per share in FY20. Theoretically, if DBS would then save S$1.25 billion from the S$3.145 billion paid in FY19.</li>
	<li>As OCBC paid S$0.53 in FY19, 60% of this amount is S$0.318 max per share in FY20 . Theoretically, OCBC would then save S$924 million from S$2.31 billion paid in FY19. </li>
	<li>As UOB paid S$1.30 in FY19,  60% of this amount is S$0.780 max per share in FY20. Theoretically, this would save S$868 million from S$2.17 billion paid in FY19.</li>
</ul>
 

Based on the above caps, the maximum potential FY20 dividend yields for the three banks could still be as high as 3.5% to 4.0%based on current market prices.  The current median indicative dividend yield for the top quartile of global banks by market value is 4.4%. 
 

FTSE Global Sustainable Yield Index Series 
The FTSE Global Sustainable Yield Index Series is reviewed semi-annually in March and September using data at the close of the last business day of February and August. This means, results of the FTSE Developed Asia Pacific ex Japan Sustainable Yield Index which includes as many as 17 Singapore stocks, are expected to be released within the week. DBS Group Holdings ("DBS"), Oversea-Chinese Banking Corp ("OCBC") have remained in the top 10 constituent weights of the FTSE Developed Asia Pacific ex-Japan Sustainable Yield Index at the end of August. United Overseas Bank ("UOB") and Hong Kong listed CK Hutchison Holdings places were displaced as the 10 heavyweights in August by Korea-listed Hyundai Motor and Hong Kong listed Sun Hung Kai Props. 
The FTSE Global Sustainable Yield Index Series examines the financial and operating strength of prospective constituents with specific emphasis on companies with strong balance sheets and the ability to generate cash flow. Financial and operational strength metrics include Return on Assets, cash-flow from operations, accruals and changes in leverage. Note that other screening criteria include the pay-out ratio and incidence of historic or forecast dividend cuts (for the Factsheet and more detailed methodology, click <a href="https://www.ftserussell.com/products/indices/sustainable-yield?utm_source=MG&amp;utm_medium=EDM&amp;utm_campaign=alwayson&amp;utm_term=180219&amp;utm_content=HOTW">here</a>), hence the upcoming rebalance results will be of particular relevance to the Singapore Banking Sector.  To follow the FTSE Index announcements: click <a href="https://www.ftserussell.com/products/index-notices/Home/GetNotices/ALL">here</a>.
</body></html>





DBS, OCBC &amp; UOB averaged 4.2% total returns in August, outpacing 1.6% flat median returns of the top quartile of global banking stocks by market value. Similar performance parallels were observed in the 2020 year to 2 Sep, with the trio averaging 18.2% declines, compared to a 20.2% median decline for the top global quartile. 
	 
	
DBS and OCBC remain amongst the top ten constituents of the FTSE Developed Asia Pacific ex-Japan Sustainable Yield Index. Constituents meet financial and operating strength criteria, with emphasis on strong balance sheets and ability to generate cash flow.  
	 
	With the three banks directed to cap FY20 dividend distributions to 60% of FY19 distributions (to bolster ability to swerve credit needs and absorb potential shocks), potential FY20 dividend yields for the three banks could be as high as 3.5% to 4.0%, based on current market prices.  

 

Sector-Driven Performances in 2020 YTD  
DBS Group Holdings ("DBS"), Oversea-Chinese Banking Corp ("OCBC") and United Overseas Bank ("UOB") all distributed dividends in August, which saw their average 2.6% price return for the month extended to a 4.2% total return. By comparison, the top quartile of global banking stocks by market value generated a median total return of 1.6% over the month.  As illustrated below, the three banks have outpaced the top quartile of global banking stocks over the past five years.



      
    
    Total Return


The three banks have gradually increasing quarterly Net Interest Income to above S$4 billion in 2QFY15 and above S$5 billion in 2QFY18, maintaining a combined Net Interest Income of S$5.4 billion in 2QFY20 as discussed here.  
For the 2020 year to 2 September, accommodative monetary policy and economic lockdowns have meant that global banks have had to contend with a sudden reduction in interest rate margins and overall demand for financing, while needing to boost loan provisions, hence uniform drivers have seen parallel performances of banking sectors across the globe. Key Banking Sector themes continuing into the second half of 2020 include bank  abilities to generate income, tier 1 capital to risk-weighted assets and non-performing loan ratios. Note that on the ability to generate income, the top quartile of global banks with an ROE less than 4% generated a median decline of 30% in the 2020 year to date.      Dividend Yields Remain Competitive  
With the MAS recently directing the three Banks to cap dividends at 60% of FY19 levels “to bolster the ability to continue to support the credit needs of businesses and consumers as well as absorb economic shocks” the maximum dividends amounts for FY20 are as follows:


As DBS paid S$1.23 in FY19, 60% of this amount is S$0.738 max per share in FY20. Theoretically, if DBS would then save S$1.25 billion from the S$3.145 billion paid in FY19.
	As OCBC paid S$0.53 in FY19, 60% of this amount is S$0.318 max per share in FY20 . Theoretically, OCBC would then save S$924 million from S$2.31 billion paid in FY19. 
	As UOB paid S$1.30 in FY19,  60% of this amount is S$0.780 max per share in FY20. Theoretically, this would save S$868 million from S$2.17 billion paid in FY19.

 

Based on the above caps, the maximum potential FY20 dividend yields for the three banks could still be as high as 3.5% to 4.0%based on current market prices.  The current median indicative dividend yield for the top quartile of global banks by market value is 4.4%.   
 

FTSE Global Sustainable Yield Index Series  
The FTSE Global Sustainable Yield Index Series is reviewed semi-annually in March and September using data at the close of the last business day of February and August. This means, results of the FTSE Developed Asia Pacific ex Japan Sustainable Yield Index which includes as many as 17 Singapore stocks, are expected to be released within the week.  DBS Group Holdings ("DBS"), Oversea-Chinese Banking Corp ("OCBC") have remained in the top 10 constituent weights of the FTSE Developed Asia Pacific ex-Japan Sustainable Yield Index at the end of August. United Overseas Bank ("UOB") and Hong Kong listed CK Hutchison Holdings places were displaced as the 10 heavyweights in August by Korea-listed Hyundai Motor and Hong Kong listed Sun Hung Kai Props.  
The FTSE Global Sustainable Yield Index Series examines the financial and operating strength of prospective constituents with specific emphasis on companies with strong balance sheets and the ability to generate cash flow. Financial and operational strength metrics include Return on Assets, cash-flow from operations, accruals and changes in leverage. Note that other screening criteria include the pay-out ratio and incidence of historic or forecast dividend cuts (for the Factsheet and more detailed methodology, click here), hence the upcoming rebalance results will be of particular relevance to the Singapore Banking Sector.   To follow the FTSE Index announcements: click here.



<figure class="editor-figure mceNonEditable"><img src="https://api2.sgx.com/sites/default/files/2020-08/Megroup-CEO.jpg" class="editor-image img-responsive"></figure>
<div class="content-caption">Megroup-CEO</div>

Engineer Wong Cheong Chee is a man who appreciates his machines.&nbsp;
As a testament to this, the Executive Chairman and CEO of SGX-listed automotive component manufacturer and dealer MeGroup Ltd spent more than four decades of his career in manufacturing.
After graduating from the University of Malaya with a degree in Mechanical Engineering in 1970, Wong started off by learning the ropes of business on the factory floor.&nbsp;
"The early years were foundation years for me," the 73-year-old recalled. “Back in those days, I was always fiddling with mechanical parts. I came to understand the role that machines and automation played in the production process, and also learned to maintain or calibrate machines to fit the factory's production needs."
"You could say that by now, I know everything about machines, since I always talk to them," he added,&nbsp;tongue firmly in cheek.
In 1995, Wong co-founded Menang Nusantara Sdn Bhd in a burst of restless&nbsp;energy, shortly after a RM60 million turnover company he co-founded – Paragon Union Bhd – was listed on Bursa Malaysia. "After Paragon went public, I briefly toyed with the idea of retiring," he recalled.
But Wong – then 48 – couldn't sit still. "I was young and restless, and I wanted to keep working, so I started Menang Nusantara with a friend. I was betting on my years of industry experience and strong relationships with my customers to make this venture work."
Menang Nusantara was initially a pure manufacturing business, and later expanded to include a dealership arm to diversify its revenues.
The journey proved to be a bumpy one, but Wong has&nbsp;no regrets. "Over the years, we experienced numerous recessions in Malaysia, more than four or five. But we pulled through each and every one of them, because of teamwork,” he recalled.
“I remember one setback we faced – a factory fire in 2016. We were able to recover and rebuild the plant in just two months, thanks to the team."
Wong's consistent comebacks from his challenges has earned him the nickname of “phoenix” among his peers, in reference to the mythical bird that rises from the ashes each time in a cycle of rebirth and regeneration.
“The highlights of my 40-year journey were the occasions when I was able to pull myself out of the pit, emerging bigger and stronger from those turbulent times,” he added.
Prudent Management
Wong has also gleaned precious lessons from each experience – a key one being prudent cash flow management. "Your operations need to be sustainable, and for that to happen, cost controls are critical. To be able to tide through price wars and downturns, you must ensure you’re not overspending."
“And every day can be a challenge, because you don’t know what’s going to come, and you need to prepare yourself for battle.”
Another highlight, he discovered, was the cohesiveness of the MeGroup team, which played an essential role when it came to problem-solving.
“When you’re faced with a crisis and sleepless nights, it’s teamwork that makes a difference – when the team comes up with a consistent strategy and moves forward in one direction.”
Listed on SGX Catalist in October 2018 as MeGroup Ltd, the Group comprises two business divisions – Manufacturing and Dealership.&nbsp;For the full year ended 31 March 2020, MeGroup reported a revenue of RM245.8 million on a net profit of RM1.2 million.&nbsp;
Its Manufacturing unit specialises in Noise, Vibration and Harshness (NVH) and non-NVH components, mostly for the automotive industry. NVH parts include headliners and engine outers that are incorporated into various sections of the automobile, such as dashboard, hood and boot, while non-NVH components include parcel trays and board assembly decks.
The Dealership business owns a portfolio of six automotive brands, ranging from Peugeot and Mazda to Hyundai and Honda, with eight dealership outlets, and one undergoing construction.
Although the outlook for Malaysia’s automotive industry has been clouded by the impact of COVID-19 and a weak economic backdrop, transportation remains a necessity. Even with new mobility solutions, the country still requires private vehicles, Wong pointed out.
Last year, the government announced plans to develop a third national car under the National Automotive Policy. MeGroup has registered its interest as a vendor to design and make NVH and non-NVH parts for the project – if it does materialise.
Reinvent, Recreate
At the same time, the Group is exploring other industries to broaden its revenues and achieve long-term sustainable growth. It is already supplying NVH components to Johnson Controls Hitachi, a heating, ventilation and air-conditioning (HVAC) manufacturer.
“Our penetration into the HVAC industry will allow us to bring our manufacturing and production capabilities to other HVAC players,” Wong added.
“Another strategy is to increase the number of products MeGroup can manufacture with its current capabilities, and supply to other sectors, such as the mattress industry, and floor carpeting services for offices and hotels,” Wong noted.
Under its dealership arm, the Group plans to obtain new brand partnerships and acquire other existing dealerships to expand organically and inorganically.
One such move was its recent contract win from Mitsubishi Motors to operate a dealership under their brand in Kuala Selangor. However, due to COVID-19, the construction and start of operations&nbsp;have been delayed&nbsp;to the July-September quarter of this year.
“MeGroup continues to be invited to bid for new NVH and non-NVH projects for new car models from different automobile brands,” Wong said. “We’re also exploring new potential business opportunities and new service offerings in the dealership outlets.”
The Group is looking to grow beyond domestic shores. “We continually seek opportunities in ASEAN to drive growth through greenfield or strategic M&amp;A possibilities. With neighbouring markets expanding into the automotive sector, this offers opportunities for us to scale our operations,” he added.
To lay the foundation for sustainable growth, MeGroup will focus on investing in new manufacturing technologies, as well as the set-up and/or acquisition of research labs. This year, it became the only NVH supplier in Malaysia to build its own sound testing facility.
“The lab allows us to innovate and test our products before mass production. We will be able to rethink, reinvent and recreate our NVH and non-NVH components, so as to be at the forefront of technology, and stay ahead of our competitors.”
Cash-Generating
Meanwhile, the biggest near-term challenge – apart from continuous price competition – is COVID-19, Wong admitted.
“Our operations were frozen for nearly three months. Since then, about 70% of our sales and deliveries have resumed. We expect a tough outlook for the rest of the year, but hopefully, the beginnings of a recovery might materialise in the first quarter of next year,” he noted.
With this downtime, MeGroup has taken the opportunity to implement new methods of operating, such as boosting its online presence through social media platforms and other digital marketing strategies. It is also improving or streamlining work processes to increase efficiency and reduce operating costs.
Industry peers have also upped the ante by slashing prices. “This is where our R&amp;D lab – which can provide us with in-house and proprietary technologies – comes in. This will set us apart from the competition.”
Other competitive strengths include MeGroup’s established network and long-standing working partnerships with its brand principals. “Our businesses are cash-generating, with stable recurring income streams and negligible collection issues,” Wong pointed out.
As at 31 March 2020, MeGroup had cash and cash equivalents of RM12.5 million, compared with RM16.9 million in the year-ago period.
“We strive to be asset-light, so we can generate faster ROI from our businesses, and maintain flexibility and liquidity to move into opportunities that may arise,” he added, referring to return on investment, a financial ratio that compares the gain or loss from an investment relative to its cost.
Despite the day-to-day challenges, the self-confessed workaholic sleeps like a log every night. “Work is what keeps me going,” he chuckled.
“I’ve tried to retire, but failed every time. It’s in my blood – I’m still kicking at 73, and if I don’t work, I feel sick!”
Nonetheless, the father of two boys and a girl – aged 37 to 44 – has put a proper succession plan in place. “My kids are working in MeGroup and running the show. Hopefully, it will be a smooth transition when they finally take over the reins.”
Whatever happens, Wong has taught his children to always remain focused. “I also want them to keep a low profile – be humble, don’t be a show-off, and concentrate on the things that matter.”
“Those are essentially the key principles of life.”
MeGroup Ltd
MeGroup is a component manufacturer and dealer in the automotive industry. Under its Manufacturing business, MeGroup specialises in manufacturing noise, vibration and harshness (NVH) and non-NVH components, primarily for the automotive industry in Malaysia. It has diversified into supplying NVH parts to Johnson Controls Hitachi, a heating, ventilation and air-conditioning (HVAC) manufacturer. For its Dealership business, MeGroup owns and operates i) three Peugeot dealerships; ii) two Honda dealerships; iii) one Mazda dealership; iv) one Hyundai dealership; v) one Ford dealership; and vi) one Mitsubishi Motors dealership in Malaysia. MeGroup maintains long-standing partnerships with its manufacturing customers, and is an Approved Supplier to Proton, Perodua, Honda, Mazda among other major car makers, as well as Johnson Controls Hitachi. The Group also maintains established relationships with its dealership principals.
The company website is: <a href="https://me-grp.com/" target="_blank" rel="noopener">me-grp.com</a>. Click&nbsp;<a href="https://www.sgx.com/securities/equities/SJY" target="_blank" rel="noopener">here</a>&nbsp;for the company's StockFacts page. For the year ended 31 March 2020 financial results, click&nbsp;<a href="https://links.sgx.com/FileOpen/MeGroup%20Ltd_FY2020%20Financial%20Results%20Announcement_20200717.ashx?App=Announcement&amp;FileID=624068" target="_blank" rel="noopener">here</a>.
&nbsp;
About&nbsp;kopi-C: the Company brew
Text: Jennifer LH Tan Photo: Company file kopi-C&nbsp;is a regular column on the SGX Research website that features C-level executives of leading companies listed on Singapore Exchange. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations. For previous editions of&nbsp;kopi-C: the Company brew,&nbsp;please click&nbsp;<a href="http://edm.sgx.com/a/hBd-CspB86%24MfB90noBAABR54ZH/link10" target="_blank" rel="noopener">here</a>. &nbsp; For more information, or if you would like your senior executives to be featured on SGX Market Dialogues, please send suggestions to&nbsp;<a href="https://www.smartkarma.com/jennifer.t@sgx.com" target="_blank" rel="noopener">jennifer.t@sgx.com</a>.


Megroup-CEO

Engineer Wong Cheong Chee is a man who appreciates his machines.&nbsp;
As a testament to this, the Executive Chairman and CEO of SGX-listed automotive component manufacturer and dealer MeGroup Ltd spent more than four decades of his career in manufacturing.
After graduating from the University of Malaya with a degree in Mechanical Engineering in 1970, Wong started off by learning the ropes of business on the factory floor.&nbsp;
"The early years were foundation years for me," the 73-year-old recalled. “Back in those days, I was always fiddling with mechanical parts. I came to understand the role that machines and automation played in the production process, and also learned to maintain or calibrate machines to fit the factory's production needs."
"You could say that by now, I know everything about machines, since I always talk to them," he added,&nbsp;tongue firmly in cheek.
In 1995, Wong co-founded Menang Nusantara Sdn Bhd in a burst of restless&nbsp;energy, shortly after a RM60 million turnover company he co-founded – Paragon Union Bhd – was listed on Bursa Malaysia. "After Paragon went public, I briefly toyed with the idea of retiring," he recalled.
But Wong – then 48 – couldn't sit still. "I was young and restless, and I wanted to keep working, so I started Menang Nusantara with a friend. I was betting on my years of industry experience and strong relationships with my customers to make this venture work."
Menang Nusantara was initially a pure manufacturing business, and later expanded to include a dealership arm to diversify its revenues.
The journey proved to be a bumpy one, but Wong has&nbsp;no regrets. "Over the years, we experienced numerous recessions in Malaysia, more than four or five. But we pulled through each and every one of them, because of teamwork,” he recalled.
“I remember one setback we faced – a factory fire in 2016. We were able to recover and rebuild the plant in just two months, thanks to the team."
Wong's consistent comebacks from his challenges has earned him the nickname of “phoenix” among his peers, in reference to the mythical bird that rises from the ashes each time in a cycle of rebirth and regeneration.
“The highlights of my 40-year journey were the occasions when I was able to pull myself out of the pit, emerging bigger and stronger from those turbulent times,” he added.
Prudent Management
Wong has also gleaned precious lessons from each experience – a key one being prudent cash flow management. "Your operations need to be sustainable, and for that to happen, cost controls are critical. To be able to tide through price wars and downturns, you must ensure you’re not overspending."
“And every day can be a challenge, because you don’t know what’s going to come, and you need to prepare yourself for battle.”
Another highlight, he discovered, was the cohesiveness of the MeGroup team, which played an essential role when it came to problem-solving.
“When you’re faced with a crisis and sleepless nights, it’s teamwork that makes a difference – when the team comes up with a consistent strategy and moves forward in one direction.”
Listed on SGX Catalist in October 2018 as MeGroup Ltd, the Group comprises two business divisions – Manufacturing and Dealership.&nbsp;For the full year ended 31 March 2020, MeGroup reported a revenue of RM245.8 million on a net profit of RM1.2 million.&nbsp;
Its Manufacturing unit specialises in Noise, Vibration and Harshness (NVH) and non-NVH components, mostly for the automotive industry. NVH parts include headliners and engine outers that are incorporated into various sections of the automobile, such as dashboard, hood and boot, while non-NVH components include parcel trays and board assembly decks.
The Dealership business owns a portfolio of six automotive brands, ranging from Peugeot and Mazda to Hyundai and Honda, with eight dealership outlets, and one undergoing construction.
Although the outlook for Malaysia’s automotive industry has been clouded by the impact of COVID-19 and a weak economic backdrop, transportation remains a necessity. Even with new mobility solutions, the country still requires private vehicles, Wong pointed out.
Last year, the government announced plans to develop a third national car under the National Automotive Policy. MeGroup has registered its interest as a vendor to design and make NVH and non-NVH parts for the project – if it does materialise.
Reinvent, Recreate
At the same time, the Group is exploring other industries to broaden its revenues and achieve long-term sustainable growth. It is already supplying NVH components to Johnson Controls Hitachi, a heating, ventilation and air-conditioning (HVAC) manufacturer.
“Our penetration into the HVAC industry will allow us to bring our manufacturing and production capabilities to other HVAC players,” Wong added.
“Another strategy is to increase the number of products MeGroup can manufacture with its current capabilities, and supply to other sectors, such as the mattress industry, and floor carpeting services for offices and hotels,” Wong noted.
Under its dealership arm, the Group plans to obtain new brand partnerships and acquire other existing dealerships to expand organically and inorganically.
One such move was its recent contract win from Mitsubishi Motors to operate a dealership under their brand in Kuala Selangor. However, due to COVID-19, the construction and start of operations&nbsp;have been delayed&nbsp;to the July-September quarter of this year.
“MeGroup continues to be invited to bid for new NVH and non-NVH projects for new car models from different automobile brands,” Wong said. “We’re also exploring new potential business opportunities and new service offerings in the dealership outlets.”
The Group is looking to grow beyond domestic shores. “We continually seek opportunities in ASEAN to drive growth through greenfield or strategic M&amp;A possibilities. With neighbouring markets expanding into the automotive sector, this offers opportunities for us to scale our operations,” he added.
To lay the foundation for sustainable growth, MeGroup will focus on investing in new manufacturing technologies, as well as the set-up and/or acquisition of research labs. This year, it became the only NVH supplier in Malaysia to build its own sound testing facility.
“The lab allows us to innovate and test our products before mass production. We will be able to rethink, reinvent and recreate our NVH and non-NVH components, so as to be at the forefront of technology, and stay ahead of our competitors.”
Cash-Generating
Meanwhile, the biggest near-term challenge – apart from continuous price competition – is COVID-19, Wong admitted.
“Our operations were frozen for nearly three months. Since then, about 70% of our sales and deliveries have resumed. We expect a tough outlook for the rest of the year, but hopefully, the beginnings of a recovery might materialise in the first quarter of next year,” he noted.
With this downtime, MeGroup has taken the opportunity to implement new methods of operating, such as boosting its online presence through social media platforms and other digital marketing strategies. It is also improving or streamlining work processes to increase efficiency and reduce operating costs.
Industry peers have also upped the ante by slashing prices. “This is where our R&amp;D lab – which can provide us with in-house and proprietary technologies – comes in. This will set us apart from the competition.”
Other competitive strengths include MeGroup’s established network and long-standing working partnerships with its brand principals. “Our businesses are cash-generating, with stable recurring income streams and negligible collection issues,” Wong pointed out.
As at 31 March 2020, MeGroup had cash and cash equivalents of RM12.5 million, compared with RM16.9 million in the year-ago period.
“We strive to be asset-light, so we can generate faster ROI from our businesses, and maintain flexibility and liquidity to move into opportunities that may arise,” he added, referring to return on investment, a financial ratio that compares the gain or loss from an investment relative to its cost.
Despite the day-to-day challenges, the self-confessed workaholic sleeps like a log every night. “Work is what keeps me going,” he chuckled.
“I’ve tried to retire, but failed every time. It’s in my blood – I’m still kicking at 73, and if I don’t work, I feel sick!”
Nonetheless, the father of two boys and a girl – aged 37 to 44 – has put a proper succession plan in place. “My kids are working in MeGroup and running the show. Hopefully, it will be a smooth transition when they finally take over the reins.”
Whatever happens, Wong has taught his children to always remain focused. “I also want them to keep a low profile – be humble, don’t be a show-off, and concentrate on the things that matter.”
“Those are essentially the key principles of life.”
MeGroup Ltd
MeGroup is a component manufacturer and dealer in the automotive industry. Under its Manufacturing business, MeGroup specialises in manufacturing noise, vibration and harshness (NVH) and non-NVH components, primarily for the automotive industry in Malaysia. It has diversified into supplying NVH parts to Johnson Controls Hitachi, a heating, ventilation and air-conditioning (HVAC) manufacturer. For its Dealership business, MeGroup owns and operates i) three Peugeot dealerships; ii) two Honda dealerships; iii) one Mazda dealership; iv) one Hyundai dealership; v) one Ford dealership; and vi) one Mitsubishi Motors dealership in Malaysia. MeGroup maintains long-standing partnerships with its manufacturing customers, and is an Approved Supplier to Proton, Perodua, Honda, Mazda among other major car makers, as well as Johnson Controls Hitachi. The Group also maintains established relationships with its dealership principals.
The company website is: me-grp.com.  Click&nbsp;here&nbsp;for the company's StockFacts page.  For the year ended 31 March 2020 financial results, click&nbsp;here.
&nbsp;
About&nbsp;kopi-C: the Company brew
Text: Jennifer LH Tan Photo: Company file  kopi-C&nbsp;is a regular column on the SGX Research website that features C-level executives of leading companies listed on Singapore Exchange. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations.  For previous editions of&nbsp;kopi-C: the Company brew,&nbsp;please click&nbsp;here. &nbsp;  For more information, or if you would like your senior executives to be featured on SGX Market Dialogues, please send suggestions to&nbsp;jennifer.t@sgx.com.

MeGroup Revs Up Sustainable Growth Engines

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