3 Sectors That Will Do Well During Phase 2

Moving from Phase 3 back to Phase 2 feels like a setback.

However, you should not let this worry distract you from looking for quality businesses to invest in.

The good news is that this downturn has not affected all sectors to the same extent.

Aviation, tourism and transportation have all been adversely impacted by border closures and movement restrictions.

But sectors such as cloud computing, for example, have witnessed a boom in business as businesses and people shift online.

Investors can look at these three sectors that should continue to do well despite the tightening of measures.

Real estate brokerage

It seems nothing can get in the way of Singaporean’s love affair with property.

With the pandemic raging around the world, many real estate investors view Singapore as a haven for parking their money.

Luxury homes have surged in popularity among the well-heeled as both owner-occupiers and investors pile into expensive residential properties worth S$5 million or more.

The rise coincided with the increase in the number of ultra-high net worth individuals in the country which rose 10.2% year on year to 3,732 last year.

Even in the broader market, property prices have hit a three-year high with the price index increase in the last four quarters since the second quarter of 2020.

Real estate brokerage firms have ridden on this interest to post strong numbers in their recent business updates.

Propnex Ltd (SGX: OYY), Singapore’s largest real estate agency with more than 9,300 salespeople, posted a 63.3% surge in revenue at S$220.6 million for the first quarter of 2021 (1Q2021).

The company’s net profit after tax nearly doubled year on year to S$16.2 million.

Over at APAC Realty Ltd (SGX: CLN), another real estate brokerage firm that operates the ERA franchise network in Asia, total revenue for 1Q2021 surged by 70% year on year to S$153.1 million.

The group’s net profit after tax more than doubled year on year to S$7.5 million.

There are risks on the horizon, though.

The CEO of property giant City Developments Limited (SGX: C09), Kwek Leng Beng, warned that should property prices rise further, the government may impose cooling measures to prevent the market from overheating.

Commodities

The commodities sector deals with a wide range of goods including coffee, palm oil, sugar and other foodstuffs.

If there’s one thing the world cannot do without during a lockdown, it’s food.

Demand for foodstuffs has remained strong despite government-imposed movement restrictions and supply chain disruptions.

In turn, commodity giants such as Wilmar International Limited (SGX: F34) have reported stronger financial results.

Wilmar’s revenue for 1Q2021 rose 30.6% year on year to US$14.3 billion, led by stronger demand for food products from China and higher volumes from its Feed and Industrial Products division.

Sales volume of food products rose 13.1% year on year to nearly seven million metric tonnes.

Core net profit rose 38.3% year on year to US$423.7 million due to stronger commodity prices.

Golden-Agri Resources Ltd (SGX: E5H), a palm oil company, reported a 24% year on year rise in revenue for 1Q2021 due to appreciation in crude palm oil (CPO) prices.

The group reported a turnaround from a loss of US$25 million to a profit after tax of US$99 million in the current quarter.

Investors should note, though, that commodity prices can be volatile and may fluctuate unpredictably.

Although these commodity companies may be doing well now, the situation could worsen quickly should commodity prices dive.

Electronics

The semiconductor and electronics sector has been a rare bright spot that has displayed healthy growth despite the global troubles.

A massive digitalisation shift for both individuals and businesses has seen demand soaring for microchips and electronic components.

For 2021, the World Semiconductor Trade Statistics forecasts that global semiconductor sales will grow 6.6% to a record high of US$469.4 billion. This rise will be driven by the rollout of 5G network services that should further enhance connectivity between devices.

Meanwhile, electronic component manufacturers have reported healthy sales and growing profits on the back of this surge in demand.

Micro-Mechanics (Holdings) Ltd (SGX: 5DD), a designer and manufacturer of precision tools and parts used in the semiconductor industry, reported a record financial performance for the nine months ended 31 March 2021 (9M2021).

Revenue grew 14.1% year on year to S$54.6 million while net profit rose 24% year on year to S$13.3 million.

For UMS Holdings Limited (SGX: 558), the group reported a 42% year on year jump in revenue to S$49.6 million while net profit climbed 44% year on year to S$15.4 million.

The provider of equipment manufacturing and engineering services to semiconductor manufacturers foresees better days ahead as the global semiconductor industry is forecast to hit record highs in fabrication equipment spending in 2022.

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Disclaimer: Royston Yang owns shares of Micro-Mechanics Holdings.

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