Singapore’s digital transformation is a real and happening movement. Since 2014, the Smart Nation programme was launched to integrate technology into daily lives and businesses to enhance productivity and raise Singaporeans’ overall living standard.
The digital transformation journey has levelled the playing field across many sectors that used to have high barriers to entry, including the financial, logistics, and aviation sectors. In the digital transformation race so far, frontrunners have started to emerge from its peers. According to DBS, there are seven of these front-running companies that should be part of any investors’ portfolio.
Investors Takeaway: Stocks Leading The Digital Race
- Singapore Telecommunications (Singtel)
While most investors recognise Singtel as a telco play, Singtel is actually much more than that. It is a unique telco-tech play that is starting to reap the benefits of digital investments made three to four years ago.
According to DBS, its digital transformation efforts is way ahead of its regional peers. However, due to EBITDA losses incurred in the Digital Life! and its cyber security businesses, they are currently valued negatively. DBS believes that these businesses should be valued using non-traditional method and assigns a value of $0.14 per share to them, based on one time revenue multiple. DBS notes that scale is the key for such businesses and growth will help turn around its loss-making digital business.
Singtel has already shown that it has the capability to turn around a loss-making digital advertising business into positive EBITDA territory. With the new digital-related revenue streams coupled with digitisation of operations to cut costs and gain market share, DBS expects Singtel to be one of the top digital plays in Singapore.
BUY, TP $3.85
- ST Engineering
In recent years, ST Engineering has increasingly positioned itself to capitalise on growth from smart city and robotics markets, encompassing even the hospitality, healthcare, transportation and security industries. Digitisation of processes within these industries will be complementary to the adoption of ST Engineering’s smart city products.
Leveraging on its track record in Singapore, ST Engineering is now targeting the global smart-city market and DBS expects ST Engineering to more than double its revenues from smart-city markets by 2022. ST Engineering has already acquired SP Telecommunications to gain access to an extensive network of fibre optic backhaul infrastructure and facilities in Singapore.
This will allow ST Engineering to move up the information and communications technology (ICT) value chain to provide connectivity and other bundled enterprise ICT services for smart city initiatives. ST Engineering has also assumed a strategic role towards achieving Singapore’s Smart Mobility 2030 vision of a smart transportation network.
Currently trading just below the mean historical price-to-earnings with a 4.5 percent dividend yield, DBS believes that ST Engineering is at the cusp of a ‘next leg up’ in its growth story while trading at reasonable valuations.
BUY, TP $4.10
Investors Takeaway: One Other Stock Resilient To Digital Transformation
- Mapletree Commercial Trust (MCT)
Given the threat from e-commerce affecting earnings at its key asset VivoCity, MCT appeared to be threatened by the transformation of retail shopping brought. However, the market has been underestimating the asset enhancement initiatives (AEIs) that MCT can take to partially future proof the mall against competition from other malls and the online space. After all, it owns best in class retail/business park assets.
DBS opines that MCT’s detractors overlooked the fact that the value-add of 10 to 29 percent in return on investment brought through recent and upcoming refurbishments as well as the newly added 24,000sqft library to Vivocity.
With an indicated distribution yield of 5.8 percent, DBS believes that MCT’s proactive moves will underpin the 2 percent distribution per unit compound annual growth rate in FY19 and FY20.
BUY, TP $1.80