There are many ways to find investment ideas. Some useful ways 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 (among the top ten stocks) that have seen the highest net disposal in dollar value by institutional investors for the week ended 9 November 2018. They are: DBS Group Holdings Ltd (SGX: D05), Singapore Telecommunications Limited (SGX: Z74) and Sembcorp Industries Limited (SGX: U96).
Source: Singapore Exchange; SGX StockFacts
The first company that saw its shares sold off by institutional investors is our local bank DBS Group.
For the quarter ended 30 September 2018, DBS saw its income climb 10% from a year ago to S$3.4 billion. Net interest income went up 15% year-on-year to S$2.3 billion, driven by improvements in net interest margin and loan volume growth. Similarly, net fee income increased 1% to S$695 million, led by growth in most areas, but offset by a decline in investment banking fees. As a result, net profit jumped 72% to S$1.4 billion.
DBS’ chief executive, Piyush Gupta, said:
“Third-quarter business momentum was sustained amidst heightened geopolitical and economic headwinds. Year-to-date earnings per share is the highest in our history while return on equity is the best in more than a decade. As we celebrate our fiftieth anniversary, we are pleased to be named Best Bank in the World by Global Finance and World’s Best Digital Bank by Euromoney. We are well positioned to continue capitalising on Asia’s long-term prospects while navigating short-term uncertainties.”
The next company that saw its shares sold off by institutions recently is our biggest local telco — Singtel.
In the latest quarter ended 30 September 2018, Singtel reported flat revenue of S$4.3 billion for FY2019’s second quarter. Yet, EBITDA (earnings before interest, taxes, depreciation, and amortisation) for the quarter declined by 10.3% year-on-year to S$1.13 billion. Singtel’s share of associates’ pre-tax earnings was also down by 49% year-on-year to S$330 million, excluding exceptional items. Consequently, Singtel’s net profit declined by 76.6% to S$667 million. Even if one-off gains and expense were removed, the telco’s underlying net profit would still be down by 21.8% year-on-year to S$715 million on the back of weaker performances in Singtel’s core businesses, and the aforementioned fall in associates’ earnings.
Nonetheless, Singtel managed to declare an interim dividend of S$0.068 per share for the reporting quarter, unchanged from a year ago.
Chua Sock Koong, Singtel’s group CEO, commented:
“Our industry continued to face various headwinds and intense competition. Notwithstanding these challenges, the half-year results reflect the resilience of our business with continued focus on networks, differentiated content, unique capabilities and innovative plans. We continued to add postpaid mobile customers across both Singapore and Australia and improved our customer retention rate. We affirm our full-year guidance despite a more challenging economic outlook. While ICT revenue was lower in the first half of the year with the completion of a major infrastructure project last year, our order book is strong and we expect ICT to grow in the second half.”
The last company with significant net selling by institutional investors is Sembcorp Industries. As a quick introduction, Sembcorp Industries is a conglomerate with three major business segments: Utilities; Marine; and Urban Development & Others. The Marine segment’s contribution mainly comes from Sembcorp Industries’ 61% ownership stake in SembCorp Marine Ltd (SGX: S51).
For the quarter ended 30 September 2018, Sembcorp Industries’ revenue improved by 36% year-on-year to S$3.0 billion. Yet, profit from operations for the quarter declined by 29% year-on-year to S$216.5 million, driven mainly by weaker performance in the Marine segment. Consequently, net profit for the quarter fell 12% year-on-year to S$82.3 million. Sembcorp Industries’ net debt stood at S$8.9 billion as at 30 September 2018.
Here’s a brief comment by Sembcorp Industries on its outlook:
“The market environment is expected to remain challenging for the rest of the year. While a broader-based global recovery is underway, downside risks to global growth have risen amidst rising trade and geopolitical challenges. The Group remains 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. Motley Fool Singapore has a recommendation for DBS Group Holdings Ltd.