Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/sunpower-group-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:18395:1">Sunpower Group (SPWG SP)</a> reported a strong set of 9M19 figures which met almost 60% of our FY19 forecast. Last year the company posted 4Q18 underlying earnings of 138.5M SGD and we are confident it will at least match this figure in 4Q19, leaving our FY19 forecast (NP of 320M RMB) intact. There is also no change to FY20 and FY21 forecasts as more GI projects ramp up, further GI M&amp;A is expected and the M&amp;S segment continues to execute on its record order book.Sunpower's GI segment accounts for 62% of EBITDA and is 100% China-focused. The company has 8 GI projects in operation with more to be added in 2020. So far the company is relatively immune from any macro Chinese slowdown as its key customers are mostly domestically focused. Management highlighted the resilience of its textile customers which serve basic day-to-day textile needs across China.<div class="content-highlight">When Sunpower first communicated its GI plans in 2017 their 2021 target looked far off. With 2019 almost behind us the targets specified in CB1+CB2 are now coming into view. Sunpower is backed by a strong management team and two of the most respected PE players in China (DCP+CDH). Given PE mandates are not endless we expect monetization strategies will come into view late 2020 or early 2021. We advise investors to buy into Sunpower before those efforts are communicated as this period likely has the highest upside.</div>YTD Sunpower's share price has risen by 78% but we still see another 60% upside to reach our unchanged Fair Value estimate of 0.97 SGD (based on 15x FY21 EPS and company meeting its FY21 NPAT targets as communicated in CB2 prospectus).

Sunpower Group (SPWG SP) reported a strong set of 9M19 figures which met almost 60% of our FY19 forecast. Last year the company posted 4Q18 underlying earnings of 138.5M SGD and we are confident it will at least match this figure in 4Q19, leaving our FY19 forecast (NP of 320M RMB) intact. There is also no change to FY20 and FY21 forecasts as more GI projects ramp up, further GI M&amp;A is expected and the M&amp;S segment continues to execute on its record order book.Sunpower's GI segment accounts for 62% of EBITDA and is 100% China-focused. The company has 8 GI projects in operation with more to be added in 2020. So far the company is relatively immune from any macro Chinese slowdown as its key customers are mostly domestically focused. Management highlighted the resilience of its textile customers which serve basic day-to-day textile needs across China.When Sunpower first communicated its GI plans in 2017 their 2021 target looked far off. With 2019 almost behind us the targets specified in CB1+CB2 are now coming into view. Sunpower is backed by a strong management team and two of the most respected PE players in China (DCP+CDH). Given PE mandates are not endless we expect monetization strategies will come into view late 2020 or early 2021. We advise investors to buy into Sunpower before those efforts are communicated as this period likely has the highest upside.YTD Sunpower's share price has risen by 78% but we still see another 60% upside to reach our unchanged Fair Value estimate of 0.97 SGD (based on 15x FY21 EPS and company meeting its FY21 NPAT targets as communicated in CB2 prospectus).

Sunpower (SPWG SP): Domestic China Play; All on Track to Meet FY20/FY21 Targets

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.

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/101/421/original/SunpowerSGX.png?1570598879" class="editor-image img-responsive" data-smartkarma-image-id="101421"></figure>
<div class="content-caption">Sunpower</div>
Engineer Frank Ma strives to live a life in 3D - the three Ds of diligence, determination and discipline, that is.&nbsp; For the Co-Founder and Executive Director of SGX-listed environmental protection solutions provider Sunpower Group Ltd, these defining qualities are touchstones. "Throughout my life, I've always set targets, and worked hard to achieve those goals," said the graduate of Nanjing Chemical Engineering Senior College, who also holds a Master's degree in Engineering Management from the University of Shanghai for Science and Technology. Ma's tenacious spirit was never more obvious than when he taught himself to speak English more than three decades ago. "During my university days, my English was really bad. After graduation, I decided to do something about it," he recalled. Having no teacher, and armed only with a dictionary and a voice recorder, Ma began memorising and reciting 20 English words every day for a year to build up his vocabulary. Today, his command of and fluency in the language belies that self-taught journey. To be sure, Ma's focus and perseverance have stood him in good stead in growing Sunpower, which he founded in 1997 together with his university classmate, Executive Chairman and Chief Executive Officer Guo Hongxin. In the late 90s, China began developing its petrochemical industry through oil and gas enterprises like China Petroleum &amp; Chemical Corporation, or Sinopec. But the need to import equipment - which resulted in long delivery lead times and escalating costs - was a serious bugbear. "We were able to fill the gap in the market by supplying Sinopec with equipment, like pipe supports, that were made with local technology and know-how. This helped them save time and money," he said. That was the milestone that marked the establishment of Sunpower's foundation business - Manufacturing &amp; Services (M&amp;S). This segment makes customised energy-saving and environmental protection products with proprietary heat transfer technologies for diverse industries, ranging from chemicals and petrochemicals to pharmaceuticals and metallurgy.&nbsp; Sunpower has served over 1,500 customers, including top-notch global corporations in more than 30 countries to-date, and about 70% are repeat clients.&nbsp; From its initial business of pipe supports, the Group went on to develop high-efficiency heat exchangers and pressure vessels, as well as heat pipes and heat pipe exchangers for recovery of waste heat in petchem, steel and chemical projects. Much later, it developed proprietary flare and flare gas recovery systems, used to recover petchem by-products from flare gas generated in a refinery during production.
&nbsp;
China's Smog Woes But the petrochemical sector has its downsides, including capacity limitations and a cyclical nature. "We realised we needed to diversify, and expand our technology to other sectors such as pollution control," Ma noted. China has increasingly suffered the scourge of polluted air since the country began industrialising, with inefficient, coal-fired boilers in industrial parks identified as one of the biggest culprits contributing to the heavy smog that regularly blankets its skies.&nbsp; The window of opportunity for Sunpower to break into this market finally widened in 2015, when the Chinese government stepped up efforts to impose stringent environmental protection laws - including compulsory shuttering of small boilers and promotion of clean coal combustion - to improve the nation's air quality. In 2016, Sunpower repositioned itself as an environmental protection services provider through its Green Investments (GI) business. The unit invests in, develops and operates centralised plants to supply steam, heat and electricity on an exclusive basis in industrial parks, replacing existing, inefficient coal-fired plants.&nbsp; While its technology cuts the amount of coal used in power generation, it also supplements with alternative feedstock, such as sludge. Using its proprietary energy-saving and long-distance steam distribution pipeline technologies, energy- and time-efficient delivery to customers is ensured. Sunpower is building a sizeable portfolio of such GI projects to generate long-term, recurring and high-quality cashflows, based on typically 30-year concession agreements. This unit - the Group's value creator and growth driver - boasts a fully integrated business model, backed by its own design institute, in-house manufacturing and services solutions, as well as proprietary technologies. With more than 400 researchers and design engineers, the Group owns 154 patents, including 60 invention patents. It has also taken the lead, or has participated, in the drafting of five engineering-related national standards that have become benchmarks for the rest of the industry.&nbsp; The long-term growth potential of its GI business is secured by a robust pipeline of projects in different stages of evaluation, with total value pegged at more than RMB3.2 billion. As at August 2019, eight projects are in operation, while another five are either under construction or in the design phase.&nbsp; Although the GI unit is in early stages of development and still ramping up, it has already contributed significantly to the Group's underlying operating cashflow for the first half of 2019, which has more than doubled year-over-year. GI revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) in 1H 2019 also roughly tripled from the previous year, accounting for more than 36% and 65% of group revenue and EBITDA respectively.&nbsp; For Ma, the GI unit is akin to an expressway toll booth. "Steam is a non-discretionary input for our clients, and we're exclusive suppliers for the industrial parks we operate in. That gives us captive customers and the ability to obtain advance payments from them," he said. "In that sense, we're like toll-keepers, collecting cash regularly." This first-mover advantage, combined with its technological expertise and strong track record, gives Sunpower a significant competitive edge, he noted. "Our stable and growing M&amp;S business complements our GI unit by efficiently controlling the cost of construction and eliminating project delays. This combination provides synergies that sets Sunpower apart from less-integrated firms."
&nbsp;
Targeting Clear Skies In 2019, the Group was recognised as one of the Best Managed Companies in China by Deloitte Touche Tohmatsu, the largest of the "Big Four" accounting and audit firms, in the first year the award was introduced to the country.&nbsp; Listed on Singapore Exchange since 2005, Sunpower has a current market capitalisation of about S$365 million. In the 2019 year-to-date, the stock has generated a total return of 39.1%, outperforming total returns of 6.5% and 8.2% for the benchmark Straits Times Index (STI) and broader FTSE ST All-Share Index respectively. Looking ahead, prospects are bright, with environmental protection and pollution control continuing to play increasingly pivotal roles in China's national policies. "There's still much to be done to meet the central government's pollution reduction targets, and this offers enormous opportunity for us," Ma added. A case in point is the Ministry of Ecology and Environment's crackdown on Shandong provincial officials for missing air quality targets earlier this year.&nbsp;"Such stringent enforcement by top-level officials will drive the long-term prospects of China's environmental protection industry, in particular, the anti-smog services sector that our GI unit is targeting." To boost its GI operations, Sunpower plans to invest RMB2.5 billion of equity in green assets by 2021, compared to its equity investment and commitment of RMB1.6 billion as at mid-2019.&nbsp; In terms of capacity, which includes plants under construction, the Group aims to grow its current gross annualised steam capacity of 21.5 million tons to 30 million tons, and current gross annualised electricity generation capacity of 2.1 million megawatt hours to 3.5 million megawatt hours.&nbsp; This expansion will be funded internally and via capital from its convertible bond tranches. In 2017 and 2018, two strategic private equity investors - DCP Capital Partners and CDH China Management - invested in Sunpower by subscribing for its convertible bonds.&nbsp; The Group's mergers and acquisitions (M&amp;A) strategy targets projects that serve a diversified customer base in stable, domestic-oriented, and cashflow-generative industries, such as textiles, printing and dyeing, food and beverage.&nbsp; "We're also interested in brownfield projects that can contribute immediately to revenue and earnings, and where we can use our technology to further improve the acquired company's operating and financial performance," Ma noted.
&nbsp;
Promising Potential Currently, the Group remains focused on GI prospects within China. "The market potential is huge, and that's our priority," he said.&nbsp;"The challenge is choosing the right target that will guarantee success according to our financial objectives, and that's where careful analysis and due diligence come in." A self-confessed "control freak", Ma is all about drilling down into the specifics. "I'm a very detailed person, and I always try to prepare, forecast and plan as much as I can," he said with a grin. In this regard, managing a business will always be his first love. "My passion lies in industry - developing strategy, overcoming challenges, driving innovation, and turning that innovation into sustainable cashflows and profits." His fervour for enterprise has its roots in China's industrialisation and urbanisation drive, which kicked off as early as the 1930s - a period in the country's history marred by civil war and political strife. "Back then, many enterprise owners believed manufacturing would form a base for the nation's development, and the setting up of industries would build the fundamentals of our economy, and thereby save our country," Ma said. That belief has also laid the foundation for China's speedy transformation into an industrial powerhouse during the turn of the century.&nbsp;"That's why I have chosen to stay in industry, even though there have been opportunities to break away and do something different," he added. When the 53-year-old is not planning and strategising for the future, he's enjoying the outdoors. "I love nature, and enjoy climbing mountains all over the country. That's why I'm passionate about this business - I want to give China back her blue skies," he added. The wine aficionado also believes in working hard and keeping things simple, a mantra he often shares with his son, 25.&nbsp; "You need to add value to yourself and contribute to society. At the same time, it's important to strike a good work-life balance. After all, life is meant to be enjoyed," he smiled. "And just like good wine, life is beautiful, deep, and full of complexity. Both should be savoured to the last drop."
&nbsp;
Sunpower Group Ltd
Founded in 1997, Sunpower&nbsp;is a China-based environmental protection solutions company specialising in proprietary energy-saving and clean power technologies, with a strong focus on anti-pollution investment projects. The Group operates two segments - Manufacturing &amp; Services (M&amp;S)&nbsp; and Green Investments (GI). The first segment develops customised energy-saving and environmental protection products with proprietary heat transfer technologies for diverse industries. The second segment - GI - focuses on the investment, development and operation of centralised heat, steam and electricity generation plants that replace existing, inefficient coal-fired plants in industrial parks. The Group is building a sizeable portfolio of GI projects to generate long-term, recurring and high-quality cashflows, based on typically 30-year concession agreements.
The company website is:&nbsp;<a href="http://edm.sgx.com/a/hBdjW0nB86%24MfB9zxYdAABR54sR/link8" target="_blank" rel="noopener">en.sunpower.com.cn</a>. Click&nbsp;<a href="http://edm.sgx.com/a/hBdjW0nB86%24MfB9zxYdAABR54sR/link9" target="_blank" rel="noopener">here</a>&nbsp;for the company's StockFacts page. For the six months ended 30 June 2019 financial results, click&nbsp;<a href="http://edm.sgx.com/a/hBdjW0nB86%24MfB9zxYdAABR54sR/link10" target="_blank" rel="noopener">here</a>. For SGX's 10 in 10 report on Sunpower Group Ltd, click&nbsp;<a href="http://edm.sgx.com/a/hBdjW0nB86%24MfB9zxYdAABR54sR/link11" target="_blank" rel="noopener">here</a>.
&nbsp;
About&nbsp;kopi-C: the Company brew
Text: Jennifer LH Tan Photo: Company file
kopi-C&nbsp;&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/hBdjW0nB86%24MfB9zxYdAABR54sR/link12" 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="mailto:jennifer.tan@sgx.com" target="_blank" rel="noopener">jennifer.tan@sgx.com</a>


Sunpower
Engineer Frank Ma strives to live a life in 3D - the three Ds of diligence, determination and discipline, that is.&nbsp;  For the Co-Founder and Executive Director of SGX-listed environmental protection solutions provider Sunpower Group Ltd, these defining qualities are touchstones.  "Throughout my life, I've always set targets, and worked hard to achieve those goals," said the graduate of Nanjing Chemical Engineering Senior College, who also holds a Master's degree in Engineering Management from the University of Shanghai for Science and Technology.  Ma's tenacious spirit was never more obvious than when he taught himself to speak English more than three decades ago. "During my university days, my English was really bad. After graduation, I decided to do something about it," he recalled.  Having no teacher, and armed only with a dictionary and a voice recorder, Ma began memorising and reciting 20 English words every day for a year to build up his vocabulary. Today, his command of and fluency in the language belies that self-taught journey.  To be sure, Ma's focus and perseverance have stood him in good stead in growing Sunpower, which he founded in 1997 together with his university classmate, Executive Chairman and Chief Executive Officer Guo Hongxin.  In the late 90s, China began developing its petrochemical industry through oil and gas enterprises like China Petroleum &amp; Chemical Corporation, or Sinopec. But the need to import equipment - which resulted in long delivery lead times and escalating costs - was a serious bugbear.  "We were able to fill the gap in the market by supplying Sinopec with equipment, like pipe supports, that were made with local technology and know-how. This helped them save time and money," he said.  That was the milestone that marked the establishment of Sunpower's foundation business - Manufacturing &amp; Services (M&amp;S). This segment makes customised energy-saving and environmental protection products with proprietary heat transfer technologies for diverse industries, ranging from chemicals and petrochemicals to pharmaceuticals and metallurgy.&nbsp;  Sunpower has served over 1,500 customers, including top-notch global corporations in more than 30 countries to-date, and about 70% are repeat clients.&nbsp;  From its initial business of pipe supports, the Group went on to develop high-efficiency heat exchangers and pressure vessels, as well as heat pipes and heat pipe exchangers for recovery of waste heat in petchem, steel and chemical projects. Much later, it developed proprietary flare and flare gas recovery systems, used to recover petchem by-products from flare gas generated in a refinery during production.
&nbsp;
China's Smog Woes  But the petrochemical sector has its downsides, including capacity limitations and a cyclical nature. "We realised we needed to diversify, and expand our technology to other sectors such as pollution control," Ma noted.  China has increasingly suffered the scourge of polluted air since the country began industrialising, with inefficient, coal-fired boilers in industrial parks identified as one of the biggest culprits contributing to the heavy smog that regularly blankets its skies.&nbsp;  The window of opportunity for Sunpower to break into this market finally widened in 2015, when the Chinese government stepped up efforts to impose stringent environmental protection laws - including compulsory shuttering of small boilers and promotion of clean coal combustion - to improve the nation's air quality.  In 2016, Sunpower repositioned itself as an environmental protection services provider through its Green Investments (GI) business. The unit invests in, develops and operates centralised plants to supply steam, heat and electricity on an exclusive basis in industrial parks, replacing existing, inefficient coal-fired plants.&nbsp;  While its technology cuts the amount of coal used in power generation, it also supplements with alternative feedstock, such as sludge. Using its proprietary energy-saving and long-distance steam distribution pipeline technologies, energy- and time-efficient delivery to customers is ensured.  Sunpower is building a sizeable portfolio of such GI projects to generate long-term, recurring and high-quality cashflows, based on typically 30-year concession agreements.  This unit - the Group's value creator and growth driver - boasts a fully integrated business model, backed by its own design institute, in-house manufacturing and services solutions, as well as proprietary technologies.  With more than 400 researchers and design engineers, the Group owns 154 patents, including 60 invention patents. It has also taken the lead, or has participated, in the drafting of five engineering-related national standards that have become benchmarks for the rest of the industry.&nbsp;  The long-term growth potential of its GI business is secured by a robust pipeline of projects in different stages of evaluation, with total value pegged at more than RMB3.2 billion. As at August 2019, eight projects are in operation, while another five are either under construction or in the design phase.&nbsp;  Although the GI unit is in early stages of development and still ramping up, it has already contributed significantly to the Group's underlying operating cashflow for the first half of 2019, which has more than doubled year-over-year. GI revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) in 1H 2019 also roughly tripled from the previous year, accounting for more than 36% and 65% of group revenue and EBITDA respectively.&nbsp;  For Ma, the GI unit is akin to an expressway toll booth. "Steam is a non-discretionary input for our clients, and we're exclusive suppliers for the industrial parks we operate in. That gives us captive customers and the ability to obtain advance payments from them," he said.  "In that sense, we're like toll-keepers, collecting cash regularly."  This first-mover advantage, combined with its technological expertise and strong track record, gives Sunpower a significant competitive edge, he noted.  "Our stable and growing M&amp;S business complements our GI unit by efficiently controlling the cost of construction and eliminating project delays. This combination provides synergies that sets Sunpower apart from less-integrated firms."
&nbsp;
Targeting Clear Skies  In 2019, the Group was recognised as one of the Best Managed Companies in China by Deloitte Touche Tohmatsu, the largest of the "Big Four" accounting and audit firms, in the first year the award was introduced to the country.&nbsp;  Listed on Singapore Exchange since 2005, Sunpower has a current market capitalisation of about S$365 million. In the 2019 year-to-date, the stock has generated a total return of 39.1%, outperforming total returns of 6.5% and 8.2% for the benchmark Straits Times Index (STI) and broader FTSE ST All-Share Index respectively.  Looking ahead, prospects are bright, with environmental protection and pollution control continuing to play increasingly pivotal roles in China's national policies. "There's still much to be done to meet the central government's pollution reduction targets, and this offers enormous opportunity for us," Ma added.  A case in point is the Ministry of Ecology and Environment's crackdown on Shandong provincial officials for missing air quality targets earlier this year.&nbsp;"Such stringent enforcement by top-level officials will drive the long-term prospects of China's environmental protection industry, in particular, the anti-smog services sector that our GI unit is targeting."  To boost its GI operations, Sunpower plans to invest RMB2.5 billion of equity in green assets by 2021, compared to its equity investment and commitment of RMB1.6 billion as at mid-2019.&nbsp;  In terms of capacity, which includes plants under construction, the Group aims to grow its current gross annualised steam capacity of 21.5 million tons to 30 million tons, and current gross annualised electricity generation capacity of 2.1 million megawatt hours to 3.5 million megawatt hours.&nbsp;  This expansion will be funded internally and via capital from its convertible bond tranches. In 2017 and 2018, two strategic private equity investors - DCP Capital Partners and CDH China Management - invested in Sunpower by subscribing for its convertible bonds.&nbsp;  The Group's mergers and acquisitions (M&amp;A) strategy targets projects that serve a diversified customer base in stable, domestic-oriented, and cashflow-generative industries, such as textiles, printing and dyeing, food and beverage.&nbsp;  "We're also interested in brownfield projects that can contribute immediately to revenue and earnings, and where we can use our technology to further improve the acquired company's operating and financial performance," Ma noted.
&nbsp;
Promising Potential  Currently, the Group remains focused on GI prospects within China. "The market potential is huge, and that's our priority," he said.&nbsp;"The challenge is choosing the right target that will guarantee success according to our financial objectives, and that's where careful analysis and due diligence come in."  A self-confessed "control freak", Ma is all about drilling down into the specifics. "I'm a very detailed person, and I always try to prepare, forecast and plan as much as I can," he said with a grin.  In this regard, managing a business will always be his first love. "My passion lies in industry - developing strategy, overcoming challenges, driving innovation, and turning that innovation into sustainable cashflows and profits."  His fervour for enterprise has its roots in China's industrialisation and urbanisation drive, which kicked off as early as the 1930s - a period in the country's history marred by civil war and political strife.  "Back then, many enterprise owners believed manufacturing would form a base for the nation's development, and the setting up of industries would build the fundamentals of our economy, and thereby save our country," Ma said.  That belief has also laid the foundation for China's speedy transformation into an industrial powerhouse during the turn of the century.&nbsp;"That's why I have chosen to stay in industry, even though there have been opportunities to break away and do something different," he added.  When the 53-year-old is not planning and strategising for the future, he's enjoying the outdoors.  "I love nature, and enjoy climbing mountains all over the country. That's why I'm passionate about this business - I want to give China back her blue skies," he added.  The wine aficionado also believes in working hard and keeping things simple, a mantra he often shares with his son, 25.&nbsp;  "You need to add value to yourself and contribute to society. At the same time, it's important to strike a good work-life balance. After all, life is meant to be enjoyed," he smiled.  "And just like good wine, life is beautiful, deep, and full of complexity. Both should be savoured to the last drop."
&nbsp;
Sunpower Group Ltd
Founded in 1997, Sunpower&nbsp;is a China-based environmental protection solutions company specialising in proprietary energy-saving and clean power technologies, with a strong focus on anti-pollution investment projects. The Group operates two segments - Manufacturing &amp; Services (M&amp;S)&nbsp; and Green Investments (GI). The first segment develops customised energy-saving and environmental protection products with proprietary heat transfer technologies for diverse industries. The second segment - GI - focuses on the investment, development and operation of centralised heat, steam and electricity generation plants that replace existing, inefficient coal-fired plants in industrial parks. The Group is building a sizeable portfolio of GI projects to generate long-term, recurring and high-quality cashflows, based on typically 30-year concession agreements.
The company website is:&nbsp;en.sunpower.com.cn.  Click&nbsp;here&nbsp;for the company's StockFacts page.  For the six months ended 30 June 2019 financial results, click&nbsp;here.  For SGX's 10 in 10 report on Sunpower Group Ltd, click&nbsp;here.
&nbsp;
About&nbsp;kopi-C: the Company brew
Text: Jennifer LH Tan Photo: Company file
kopi-C&nbsp;&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.tan@sgx.com

Sunpower Eyes Green Assets in Battle for Blue Skies

ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

Cross Asset Strategy

<div class="content-highlight">
This past week's offering of Insights across ASEAN@Smartkarma is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up pieces. Please find a brief summary below, with a fuller write up in the detailed section.
This week's highlights include comments from CrossASEAN Economist <a href="https://www.smartkarma.com/profiles/prasenjit-k-basu" target="_blank" data-smartkarma-citation="accounts:612" rel="noopener">Prasenjit K. Basu</a> on the Global Economy, an update from <a href="https://www.smartkarma.com/profiles/dr-jim-walker" target="_blank" data-smartkarma-citation="accounts:1628" rel="noopener">Dr. Jim Walker</a> on the Philippines economy post some "ugly" numbers, two small-cap updates from CrossASEAN Insight Provider <a href="https://www.smartkarma.com/profiles/nicolas-van-broekhoven-24a66c2d-bca4-4f5b-adda-c4e2bcc509f4" target="_blank" data-smartkarma-citation="accounts:1208" rel="noopener">Nicolas Van Broekhoven</a> on <a href="https://www.smartkarma.com/entities/aem-holdings-ltd" target="_blank" data-smartkarma-citation="entities:11019:1" rel="noopener">AEM Holdings (AEM SP)</a> and <a href="https://www.smartkarma.com/entities/sunpower-group-ltd" target="_blank" data-smartkarma-citation="entities:18395:1" rel="noopener">Sunpower Group (SPWG SP),</a> a negative Insight from <a href="https://www.smartkarma.com/profiles/daniel-tabbush" target="_blank" data-smartkarma-citation="accounts:12" rel="noopener">Daniel Tabbush</a> on <a href="https://www.smartkarma.com/entities/bank-danamon-indonesia-tbk-pt" target="_blank" data-smartkarma-citation="entities:135:1" rel="noopener">Bank Danamon Indonesia (BDMN IJ),</a> and an update from<a href="https://www.smartkarma.com/profiles/athaporn-arayasantiparb-cfa" target="_blank" data-smartkarma-citation="accounts:766" rel="noopener">Athaporn Arayasantiparb, CFA</a> on <a href="https://www.smartkarma.com/entities/tipco-asphalt-pub-co-ltd" target="_blank" data-smartkarma-citation="entities:5336:1" rel="noopener">Tipco Asphalt (TASCO TB).</a> Also included in the detailed section some highlights from discussion streams in <a href="mailto:ASEAN@Smartkarma" target="_blank" rel="noopener">ASEAN@Smartkarma</a> over the last week. 
</div><h2>Macro Insights</h2>In <a href="https://www.smartkarma.com/insights/recession-watch-fluctuating-trade-war-on-the-verge-of-tripping-up-the-world-economy" target="_blank" data-smartkarma-citation="insights:31620" rel="noopener">Recession Watch: Fluctuating Trade War on the Verge of Tripping up the World Economy,</a> CrossASEAN Chief Economist <a href="https://www.smartkarma.com/profiles/prasenjit-k-basu" target="_blank" data-smartkarma-citation="accounts:612" rel="noopener">Prasenjit K. Basu</a> zeros in on the latest manifestation of the US-China trade war. In <a href="https://www.smartkarma.com/insights/expect-more-rate-cuts-in-the-philippines-growth-and-inflation-supports-cuts" target="_blank" data-smartkarma-citation="insights:31685" rel="noopener">Expect More Rate Cuts in the Philippines: Growth and Inflation Support Cuts,</a><a href="https://www.smartkarma.com/profiles/dr-jim-walker" target="_blank" data-smartkarma-citation="accounts:1628" rel="noopener">Dr. Jim Walker</a> comments on the Philippine economy post recent "ugly" economic numbers. In <a href="https://www.smartkarma.com/insights/thai-macro-watch-china-devalues-thailand-cut-rates" target="_blank" data-smartkarma-citation="insights:31660" rel="noopener">Thai Macro Watch: China Devalues, Thailand Cut Rates</a>, our Thai guru <a href="https://www.smartkarma.com/profiles/athaporn-arayasantiparb-cfa" target="_blank" data-smartkarma-citation="accounts:766" rel="noopener">Athaporn Arayasantiparb, CFA</a> zeros in on these two important developments in China and Thailand. In <a href="https://www.smartkarma.com/insights/singapore-macro-negative" target="_blank" data-smartkarma-citation="insights:31681" rel="noopener">Singapore Macro Negative,</a> Technical specialist <a href="https://www.smartkarma.com/profiles/thomas-schroeder" target="_blank" data-smartkarma-citation="accounts:381" rel="noopener">Thomas Schroeder</a> casts his eye over the Singapore <a href="https://www.smartkarma.com/entities/straits-times-index-sti" target="_blank" data-smartkarma-citation="entities:22902:1" rel="noopener">Straits Times Index Sti (STI INDEX)</a>, where he sees some bearish signals. <h2>Equity Bottom-Up Insights</h2>In <a href="https://www.smartkarma.com/insights/aem-aem-sp-strong-1h19-and-increased-fy19-guidance-leave-aem-trading-at-less-than-1x-fy19-sales" target="_blank" data-smartkarma-citation="insights:31700" rel="noopener">AEM (AEM SP): Strong 1H19 and Increased FY19 Guidance Leave AEM Trading at Less than 1x FY19 Sales</a>, CrossASEAN Insight Provider <a href="https://www.smartkarma.com/profiles/nicolas-van-broekhoven-24a66c2d-bca4-4f5b-adda-c4e2bcc509f4" target="_blank" data-smartkarma-citation="accounts:1208" rel="noopener">Nicolas Van Broekhoven</a> revisits this IT testing player company post results. In <a href="https://www.smartkarma.com/insights/sunpower-spwg-sp-1h19-growth-continues-stronger-2h19-expected-fair-value-0-97-sgd-122-upside" target="_blank" data-smartkarma-citation="insights:31792" rel="noopener">Sunpower (SPWG SP): 1H19 Growth Continues; Stronger 2H19 Expected; Fair Value 0.97 SGD (122% Upside),</a><a href="https://www.smartkarma.com/profiles/nicolas-van-broekhoven-24a66c2d-bca4-4f5b-adda-c4e2bcc509f4" target="_blank" data-smartkarma-citation="accounts:1208" rel="noopener">Nicolas Van Broekhoven</a> revisits the company post results. In <a href="https://www.smartkarma.com/insights/bank-danamon-credit-quality-failing-fast" target="_blank" data-smartkarma-citation="insights:31769" rel="noopener">Bank Danamon – Credit Quality, Failing Fast,</a> banking specialist <a href="https://www.smartkarma.com/profiles/daniel-tabbush" target="_blank" data-smartkarma-citation="accounts:12" rel="noopener">Daniel Tabbush</a> circles back to this Indonesian bank recently acquired by <a href="https://www.smartkarma.com/entities/mitsubishi-ufj-financial-gro" target="_blank" data-smartkarma-citation="entities:218:1" rel="noopener">Mitsubishi Ufj Financial (8306 JP)</a>.In <a href="https://www.smartkarma.com/insights/kasikornbank-pcl-kbank-tb-can-kbank-earn-a-high-roe-again" target="_blank" data-smartkarma-citation="insights:31670" rel="noopener">Kasikornbank PCL (KBANK TB): Can KBANK Earn A High ROE Again?,</a><a href="https://www.smartkarma.com/profiles/emile-farsoun" target="_blank" data-smartkarma-citation="accounts:4470" rel="noopener">Emile Farsoun</a> looks at this leading Thai bank.In <a href="https://www.smartkarma.com/insights/tipco-asphalt-rising-like-a-phoenix" target="_blank" data-smartkarma-citation="insights:30724" rel="noopener">Tipco Asphalt: Rising Like a Phoenix,</a> Thai guru <a href="https://www.smartkarma.com/profiles/athaporn-arayasantiparb-cfa" target="_blank" data-smartkarma-citation="accounts:766" rel="noopener">Athaporn Arayasantiparb, CFA</a> circles back to this asphalt play. In <a href="https://www.smartkarma.com/insights/city-developments-latest-offer-for-m-c-is-a-done-deal" target="_blank" data-smartkarma-citation="insights:31745" rel="noopener">City Developments' Latest Offer For M&amp;C Is A Done Deal,</a><a href="https://www.smartkarma.com/profiles/david-blennerhassett" target="_blank" data-smartkarma-citation="accounts:840" rel="noopener">David Blennerhassett</a> takes a look at this privatisation offer.In <a href="https://www.smartkarma.com/insights/uob-china-bank-investment-nationalised-soaring-building-construction-npls" target="_blank" data-smartkarma-citation="insights:31698" rel="noopener">UOB – China Bank Investment Nationalised, Soaring Building, Construction NPLs</a>, <a href="https://www.smartkarma.com/profiles/daniel-tabbush" target="_blank" data-smartkarma-citation="accounts:12" rel="noopener">Daniel Tabbush</a> revisits this Singapore bank in light of its exposure to a recently nationalised Chinese Bank. In <a href="https://www.smartkarma.com/insights/singtel-1q20-result-shows-tough-trends-but-guidance-retained-needs-a-2h-recovery" target="_blank" data-smartkarma-citation="insights:31788" rel="noopener">Singtel 1Q20 Result Shows Tough Trends but Guidance Retained. Needs a 2H Recovery,</a> our friends at <a href="https://www.smartkarma.com/companies/new-street-research" target="_blank" data-smartkarma-citation="companies:151" rel="noopener">New Street Research</a> revisit Singapore'sleading Telco post its recent numbers. In <a href="https://www.smartkarma.com/insights/planb-record-high-earnings-supported-by-digital-media-revenue" target="_blank" data-smartkarma-citation="insights:31764" rel="noopener">PLANB: Record High Earnings Supported by Digital Media Revenue</a>, <a href="https://www.smartkarma.com/companies/country-group" target="_blank" data-smartkarma-citation="companies:965" rel="noopener">Country Group</a> revisits this leading Thai media player post some impressive numbers.<h2>Sector and Thematic Insights</h2>In <a href="https://www.smartkarma.com/insights/singapore-real-deals-issue-8-high-profile-projects-boost-july-ura-private-home-sales-data" target="_blank" data-smartkarma-citation="insights:31817" rel="noopener">Singapore Real Deals (Issue 8): High-Profile Projects Boost July URA Private Home Sales Data</a>, property specialist <a href="https://www.smartkarma.com/profiles/anni-kum" target="_blank" data-smartkarma-citation="accounts:1786" rel="noopener">Anni Kum</a> publishes her fortnightly property digest that takes you through the peculiarities of Singapore's real estate market. In this issue, she analyzes the data on property developers’ private home sales for the month of July 2019 released by the Urban Redevelopment Authority (URA) on 15th August 2019.In <a href="https://www.smartkarma.com/insights/singapore-reit-chasing-the-next-global-reit-ipo" target="_blank" data-smartkarma-citation="insights:31823" rel="noopener">Singapore REIT: Chasing the Next Global REIT IPO,</a><a href="https://www.smartkarma.com/profiles/anni-kum" target="_blank" data-smartkarma-citation="accounts:1786" rel="noopener">Anni Kum</a> takes a look at the next potential global REIT IPO to list in Singapore.


This past week's offering of Insights across ASEAN@Smartkarma is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up pieces. Please find a brief summary below, with a fuller write up in the detailed section.
This week's highlights include comments from CrossASEAN Economist Prasenjit K. Basu on the Global Economy, an update from Dr. Jim Walker on the Philippines economy post some "ugly" numbers, two small-cap updates from CrossASEAN Insight Provider Nicolas Van Broekhoven on AEM Holdings (AEM SP) and Sunpower Group (SPWG SP), a negative Insight from Daniel Tabbush on Bank Danamon Indonesia (BDMN IJ), and an update fromAthaporn Arayasantiparb, CFA on Tipco Asphalt (TASCO TB). Also included in the detailed section some highlights from discussion streams in ASEAN@Smartkarma over the last week. 
Macro InsightsIn Recession Watch: Fluctuating Trade War on the Verge of Tripping up the World Economy, CrossASEAN Chief Economist Prasenjit K. Basu zeros in on the latest manifestation of the US-China trade war. In Expect More Rate Cuts in the Philippines: Growth and Inflation Support Cuts,Dr. Jim Walker comments on the Philippine economy post recent "ugly" economic numbers. In Thai Macro Watch: China Devalues, Thailand Cut Rates, our Thai guru Athaporn Arayasantiparb, CFA zeros in on these two important developments in China and Thailand. In Singapore Macro Negative, Technical specialist Thomas Schroeder casts his eye over the Singapore Straits Times Index Sti (STI INDEX), where he sees some bearish signals. Equity Bottom-Up InsightsIn AEM (AEM SP): Strong 1H19 and Increased FY19 Guidance Leave AEM Trading at Less than 1x FY19 Sales, CrossASEAN Insight Provider Nicolas Van Broekhoven revisits this IT testing player company post results. In Sunpower (SPWG SP): 1H19 Growth Continues; Stronger 2H19 Expected; Fair Value 0.97 SGD (122% Upside),Nicolas Van Broekhoven revisits the company post results. In Bank Danamon – Credit Quality, Failing Fast, banking specialist Daniel Tabbush circles back to this Indonesian bank recently acquired by Mitsubishi Ufj Financial (8306 JP).In Kasikornbank PCL (KBANK TB): Can KBANK Earn A High ROE Again?,Emile Farsoun looks at this leading Thai bank.In Tipco Asphalt: Rising Like a Phoenix, Thai guru Athaporn Arayasantiparb, CFA circles back to this asphalt play. In City Developments' Latest Offer For M&amp;C Is A Done Deal,David Blennerhassett takes a look at this privatisation offer.In UOB – China Bank Investment Nationalised, Soaring Building, Construction NPLs, Daniel Tabbush revisits this Singapore bank in light of its exposure to a recently nationalised Chinese Bank. In Singtel 1Q20 Result Shows Tough Trends but Guidance Retained. Needs a 2H Recovery, our friends at New Street Research revisit Singapore'sleading Telco post its recent numbers. In PLANB: Record High Earnings Supported by Digital Media Revenue, Country Group revisits this leading Thai media player post some impressive numbers.Sector and Thematic InsightsIn Singapore Real Deals (Issue 8): High-Profile Projects Boost July URA Private Home Sales Data, property specialist Anni Kum publishes her fortnightly property digest that takes you through the peculiarities of Singapore's real estate market. In this issue, she analyzes the data on property developers’ private home sales for the month of July 2019 released by the Urban Redevelopment Authority (URA) on 15th August 2019.In Singapore REIT: Chasing the Next Global REIT IPO,Anni Kum takes a look at the next potential global REIT IPO to list in Singapore. 

The Week That Was in ASEAN@Smartkarma - Philippines Economy, Small Cap Singapore, and Bank Danamon

<a href="https://www.smartkarma.com/entities/18395" target="_blank" data-smartkarma-citation="entities:18395:1" rel="noopener">Sunpower Group (SPWG SP)</a> has seen an incredible transformation over the past 24 months. Since the entry of two respected PE funds (DCP and CDH) the company has de-emphasized its historical M&amp;S business and pushed full throttle on its GI (Green Investments) portfolio.
The efforts of this shift to GI are now bearing fruit with 1H19 revenues continuing the trend set at its FY18 earnings announcement. Revenues increased by 20.6% to 1,470.6 million RMB, EBITDA rose by 85.4% to 269.5 million RMB (18.3% EBITDA margin vs 11.9% in 1H18) and underlying NPAT was up by 53.2% to 111 million RMB.
Encouragingly, it seems like growth will continue with management expecting a stronger 2H19 vs 1H19. Most importantly, the quality and predictability of its cash flows have continued to improve. Sunpower management believes demand for its GI services is mainly driven by domestic demand, hence it sees little impact from the ongoing trade war.
The issue of air pollution in China remains an acute problem as highlighted by a recent <a href="https://www.reuters.com/article/us-china-pollution/northern-china-pollution-soars-in-february-official-data-idUSKCN1QM0CP" target="_blank" rel="noopener">Reuters</a> analysis:
<blockquote>
...the average concentration of hazardous PM2.5 airborne dust particles in Beijing-Tianjin-Hebei and the Fenwei Plain rose 40% in February 2019 to hit 108 micrograms per cubic meter, far above China’s official standard of 35 micrograms. There is still much to be done to meet the central government’s pollution reduction targets .... The Ministry of Ecology and Environment has also recently cracked down on Shandong provincial officials for missing air quality targets. Such top-level official backing and stringent enforcement will drive the long-term prospects of China’s environmental protection industry, particularly the anti-smog services sector that Sunpower’s GI business is targeting
</blockquote>
It is rare to find companies that give you FY20/FY21 NPAT forecasts but Sunpower did this with the issuance of its second CB late 3Q18. Instead of using limited sell-side forecasts we now focus on these public forecasts to guide investors what Sunpower's fair value is depending on the PE multiple that investors apply.
My Fair Value is lowered because of RMB/SGD FX changes from 1 SGD to 0.97 SGD (based on 15x FY21 EPS and company meeting its FY21 NPAT targets as communicated in CB2 prospectus).

Sunpower Group (SPWG SP) has seen an incredible transformation over the past 24 months. Since the entry of two respected PE funds (DCP and CDH) the company has de-emphasized its historical M&amp;S business and pushed full throttle on its GI (Green Investments) portfolio.
The efforts of this shift to GI are now bearing fruit with 1H19 revenues continuing the trend set at its FY18 earnings announcement. Revenues increased by 20.6% to 1,470.6 million RMB, EBITDA rose by 85.4% to 269.5 million RMB (18.3% EBITDA margin vs 11.9% in 1H18) and underlying NPAT was up by 53.2% to 111 million RMB.
Encouragingly, it seems like growth will continue with management expecting a stronger 2H19 vs 1H19. Most importantly, the quality and predictability of its cash flows have continued to improve. Sunpower management believes demand for its GI services is mainly driven by domestic demand, hence it sees little impact from the ongoing trade war.
The issue of air pollution in China remains an acute problem as highlighted by a recent Reuters analysis:

...the average concentration of hazardous PM2.5 airborne dust particles in Beijing-Tianjin-Hebei and the Fenwei Plain rose 40% in February 2019 to hit 108 micrograms per cubic meter, far above China’s official standard of 35 micrograms. There is still much to be done to meet the central government’s pollution reduction targets .... The Ministry of Ecology and Environment has also recently cracked down on Shandong provincial officials for missing air quality targets. Such top-level official backing and stringent enforcement will drive the long-term prospects of China’s environmental protection industry, particularly the anti-smog services sector that Sunpower’s GI business is targeting

It is rare to find companies that give you FY20/FY21 NPAT forecasts but Sunpower did this with the issuance of its second CB late 3Q18. Instead of using limited sell-side forecasts we now focus on these public forecasts to guide investors what Sunpower's fair value is depending on the PE multiple that investors apply.
My Fair Value is lowered because of RMB/SGD FX changes from 1 SGD to 0.97 SGD (based on 15x FY21 EPS and company meeting its FY21 NPAT targets as communicated in CB2 prospectus).

Sunpower (SPWG SP): 1H19 Growth Continues; Stronger 2H19 Expected; Fair Value 0.97 SGD (122% Upside)

Ascendas Hospitality Trust / Equity Bottom-Up

<ul>
<li>This week (30-31 July) the Fed Reserve is expected to deliver a cut in the Fed Funds Rate with the possibility of a dovish outlook and room for more cuts, in addition to ending the preceding course of balance sheet reduction/ quantitative tightening ahead of September.</li>
<li>A key motivation for this potential rate cut are weaker global numbers particularly in the manufacturing and trade-related sectors. The same weak reports, with the trade impasses &amp; consequential outlooks, have impacted the region as noted in recent earnings reports. </li>
</ul>
<ul>
<li>The Singapore stock market has kept resilient with the recent global challenges. While the most traded manufacturing &amp; real estate stocks outpaced the STI in 2019 YTD, trade-related economic uncertainty has seen the manufacturing stocks twice as volatile as the real estate stocks. </li>
</ul>
Global Anticipation of a Fed Funds Rate Cut
By Thursday (31 July) 2am Singapore time, the Federal Reserve is expected to deliver a 25 basis points (‘bps”) cut in the Federal Funds Rate. Should the majority consensus prove correct, this would be the first US Federal Funds Rate cut since December 2008. The current rate target range for the Federal Funds Rate is 2.25% to 2.50%.
The last time the Federal Reserve moved interest rates back towards 2.00% was in April 2008, citing that in the United States economic growth had remained weak, labour market conditions had deteriorated further, and manufacturing activity was soft. This time around, the expected rate cut has been cited by Fed officials for some insurance against a sharper US slowdown (similar to 1995-1996). Beyond the expected 25 bps rate cut, markets will also be on the watch for a dovish tone statement by the Federal Reserve, with room for more cuts. In addition, the market will be looking to see if the Federal Reserve ends its agenda of balance sheet reduction/ quantitative tightening ahead of September.
Reasons for a Dovish Federal Reserve Highly Relevant to Singapore Economy
The particularly good news for Singapore’s trade-orientated sectors is that the current economic uncertainty faced by the changed trade climate is a large part of the Federal Reserve’s reasoning for their more dovish outlook.
As noted mid-July (click <a href="https://www2.sgx.com/research-education/market-updates/20190712-us-rate-speculation-fuelled-weeks-swing-singapore-stocks" target="_blank" rel="noopener">here</a>) the rationale for the dovish stance taken by the Federal Reserve Chair at the Semi-annual Monetary Policy Report to Congress, was weak global numbers “particularly in the manufacturing and trade-related sectors”. Some of that economic uncertainty was communicated in the record 2QFY19 results reported by DBS Group Holdings yesterday (click <a href="https://links.sgx.com/1.0.0/corporate-announcements/CTK2YWJHT81P7ZZD/c01e17d21c8731077faf9078e7e92419f49979244654d99ab3f44b15b6c27004" target="_blank" rel="noopener">here</a>). This was through moderate increases in the group's provisions, through increased expected credit losses on the back of “heightened economic uncertainty and geopolitical tensions”.
The same economic uncertainty faced by the group, and indeed the region, is a key motivator for the expected cut in the Fed Funds Rate.
Singapore Policies Aimed at Boosting Growth while Promoting Great Equity
The highly eventful month of July also saw the International Monetary Fund (“IMF”) release its annual report of its bilateral discussion with Singapore. The report (click <a href="https://www.imf.org/en/Publications/CR/Issues/2019/07/15/Singapore-2019-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-47119" target="_blank" rel="noopener">here</a>) highlighted that:
<ul>
<li>Singapore’s GDP per capita more than doubled in the last twenty years and income equality has been advancing since 2008/2009;</li>
<li>Policies have been aimed at boosting growth while promoting greater equity; and</li>
<li>As a highly open economy and an important financial center, Singapore is strongly influenced by developments in the region and the rest of the world.</li>
</ul>
Singapore’s economic growth is projected by the IMF to decline to 2.0% in 2019, below potential which is estimated at 2.5% in the medium term, with modern services becoming an increasingly important driver.
On the risks front, the report reiterated that as a financial and trading hub, Singapore is particularly exposed to a tightening of global financial conditions, escalation of sustained trade tensions, and deceleration of global growth. 
And as discussed above, the key trio of assessed external risks of a sharp tightening of global financial conditions, rising protectionism and retreat from multilateralism, and weaker than expected global growth overlap with the motivators for the expected dovish stance to be taken by the Federal Reserve at the imminent meeting.
Meanwhile on the domestic front, the IMF assessed the risk of a disorderly correction in Singapore property prices was a low likelihood, which compared to a low-to-medium likelihood for Australia, and a medium likelihood for Hong Kong, based on similar reports earlier in the year.
Diversified Stock Markets Provides for More Choice in Risk to Return 
Singapore’s stock market is highly diversified with the 200 most active stocks by turnover this year representing more than 20 different sectors or industries. The two sectors with the greatest representation by the number of stocks amongst the 200 stocks have been real estate stocks( or trusts) and manufacturing-related stocks. Together these two stock sectors accounted for more than two-fifths (40%) of the 200 most active stocks by turnover in 1H19.
In both instances, the average year-to-date total return of the stocks that make up those sectors has outpaced the STI’s 11.8% 2019 year-to-date total return. However economic uncertainty resulting from ongoing global trade discussions, in addition to expectations that the next move by the Federal Reserve will be an interest rate cut (following nine successive hikes) has seen the manufacturing stocks average twice the volatility of the real estate stocks.
&nbsp;
Both sectors have stocks well diversified by exposures to Singapore, the region and globally. However, the two distinct stock genres maintain different risk profiles, for instance:
<ul>
<li>Both in the July month-to-date and 2019 year-to-date, the manufacturing stocks have seen much greater swings and less consistency in the returns across the 24 relevant stocks than the 59 counterparts in Real Estate; &nbsp;</li>
<li>At the same time the best performing manufacturing stock in the July month-to-date, AEM Holdings, with its 16.5% total return doubled the month-to-date return of the best performing real estate stock over the period, OUE Commercial REIT (which was up 7.9%); &nbsp;</li>
<li>A similar observation was made in the 2019 year-to-date with&nbsp;manufacturing’s best performer Frencken Group generating a 79.7% total return compared to real estate’s Ascendas Hospitality Trust generating a 41.2% total return. &nbsp;</li>
<li>The average 12 month historical volatility of the 24 manufacturing stocks was 48% compared to 19% for the 59 Real Estate Stocks.</li>
</ul>
The 59 Real Estate stocks averaged a 17.9% total return in the 2019 year-to-date, with just two decliners amidst the 59 stocks.&nbsp;The Real Estate Investment Trusts (“REITs”) have been a key driver of the performance of the real estate stocks with the&nbsp;<a href="https://www2.sgx.com/indices/products/sreit" target="_blank" rel="noopener">iEdge S-REIT Index</a>&nbsp;generating a 21.9% total return in the 2019 year-to-date. Analysts attributed the strength to defensive flows into REITs in a risk-off environment (due to trade tensions) and growing expectations for a cut in the Federal Funds Rate. The REIT segment has also continued to expand and recently saw the debut of the third US office REIT (Prime US REIT) to list on SGX – click&nbsp;<a href="https://www2.sgx.com/research-education/market-updates/20190719-prime-us-reit-sgxs-3rd-pure-play-us-office-reit-makes" target="_blank" rel="noopener">here</a>&nbsp;for more.
By contrast, the 24 Manufacturing stocks averaged a 20.8% total return in the 2019 year-to-date, with five decliners amidst the 24 stocks. The below tables are sort by total returns for the 2019 year-to-date.


This week (30-31 July) the Fed Reserve is expected to deliver a cut in the Fed Funds Rate with the possibility of a dovish outlook and room for more cuts, in addition to ending the preceding course of balance sheet reduction/ quantitative tightening ahead of September.
A key motivation for this potential rate cut are weaker global numbers particularly in the manufacturing and trade-related sectors. The same weak reports, with the trade impasses &amp; consequential outlooks, have impacted the region as noted in recent earnings reports. 


The Singapore stock market has kept resilient with the recent global challenges. While the most traded manufacturing &amp; real estate stocks outpaced the STI in 2019 YTD, trade-related economic uncertainty has seen the manufacturing stocks twice as volatile as the real estate stocks. 

Global Anticipation of a Fed Funds Rate Cut
By Thursday (31 July) 2am Singapore time, the Federal Reserve is expected to deliver a 25 basis points (‘bps”) cut in the Federal Funds Rate. Should the majority consensus prove correct, this would be the first US Federal Funds Rate cut since December 2008. The current rate target range for the Federal Funds Rate is 2.25% to 2.50%.
The last time the Federal Reserve moved interest rates back towards 2.00% was in April 2008, citing that in the United States economic growth had remained weak, labour market conditions had deteriorated further, and manufacturing activity was soft. This time around, the expected rate cut has been cited by Fed officials for some insurance against a sharper US slowdown (similar to 1995-1996). Beyond the expected 25 bps rate cut, markets will also be on the watch for a dovish tone statement by the Federal Reserve, with room for more cuts. In addition, the market will be looking to see if the Federal Reserve ends its agenda of balance sheet reduction/ quantitative tightening ahead of September.
Reasons for a Dovish Federal Reserve Highly Relevant to Singapore Economy
The particularly good news for Singapore’s trade-orientated sectors is that the current economic uncertainty faced by the changed trade climate is a large part of the Federal Reserve’s reasoning for their more dovish outlook.
As noted mid-July (click here) the rationale for the dovish stance taken by the Federal Reserve Chair at the Semi-annual Monetary Policy Report to Congress, was weak global numbers “particularly in the manufacturing and trade-related sectors”. Some of that economic uncertainty was communicated in the record 2QFY19 results reported by DBS Group Holdings yesterday (click here). This was through moderate increases in the group's provisions, through increased expected credit losses on the back of “heightened economic uncertainty and geopolitical tensions”.
The same economic uncertainty faced by the group, and indeed the region, is a key motivator for the expected cut in the Fed Funds Rate.
Singapore Policies Aimed at Boosting Growth while Promoting Great Equity
The highly eventful month of July also saw the International Monetary Fund (“IMF”) release its annual report of its bilateral discussion with Singapore. The report (click here) highlighted that:

Singapore’s GDP per capita more than doubled in the last twenty years and income equality has been advancing since 2008/2009;
Policies have been aimed at boosting growth while promoting greater equity; and
As a highly open economy and an important financial center, Singapore is strongly influenced by developments in the region and the rest of the world.

Singapore’s economic growth is projected by the IMF to decline to 2.0% in 2019, below potential which is estimated at 2.5% in the medium term, with modern services becoming an increasingly important driver.
On the risks front, the report reiterated that as a financial and trading hub, Singapore is particularly exposed to a tightening of global financial conditions, escalation of sustained trade tensions, and deceleration of global growth. 
And as discussed above, the key trio of assessed external risks of a sharp tightening of global financial conditions, rising protectionism and retreat from multilateralism, and weaker than expected global growth overlap with the motivators for the expected dovish stance to be taken by the Federal Reserve at the imminent meeting.
Meanwhile on the domestic front, the IMF assessed the risk of a disorderly correction in Singapore property prices was a low likelihood, which compared to a low-to-medium likelihood for Australia, and a medium likelihood for Hong Kong, based on similar reports earlier in the year.
Diversified Stock Markets Provides for More Choice in Risk to Return 
Singapore’s stock market is highly diversified with the 200 most active stocks by turnover this year representing more than 20 different sectors or industries. The two sectors with the greatest representation by the number of stocks amongst the 200 stocks have been real estate stocks( or trusts) and manufacturing-related stocks. Together these two stock sectors accounted for more than two-fifths (40%) of the 200 most active stocks by turnover in 1H19.
In both instances, the average year-to-date total return of the stocks that make up those sectors has outpaced the STI’s 11.8% 2019 year-to-date total return. However economic uncertainty resulting from ongoing global trade discussions, in addition to expectations that the next move by the Federal Reserve will be an interest rate cut (following nine successive hikes) has seen the manufacturing stocks average twice the volatility of the real estate stocks.
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Both sectors have stocks well diversified by exposures to Singapore, the region and globally. However, the two distinct stock genres maintain different risk profiles, for instance:

Both in the July month-to-date and 2019 year-to-date, the manufacturing stocks have seen much greater swings and less consistency in the returns across the 24 relevant stocks than the 59 counterparts in Real Estate; &nbsp;
At the same time the best performing manufacturing stock in the July month-to-date, AEM Holdings, with its 16.5% total return doubled the month-to-date return of the best performing real estate stock over the period, OUE Commercial REIT (which was up 7.9%); &nbsp;
A similar observation was made in the 2019 year-to-date with&nbsp;manufacturing’s best performer Frencken Group generating a 79.7% total return compared to real estate’s Ascendas Hospitality Trust generating a 41.2% total return. &nbsp;
The average 12 month historical volatility of the 24 manufacturing stocks was 48% compared to 19% for the 59 Real Estate Stocks.

The 59 Real Estate stocks averaged a 17.9% total return in the 2019 year-to-date, with just two decliners amidst the 59 stocks.&nbsp;The Real Estate Investment Trusts (“REITs”) have been a key driver of the performance of the real estate stocks with the&nbsp;iEdge S-REIT Index&nbsp;generating a 21.9% total return in the 2019 year-to-date. Analysts attributed the strength to defensive flows into REITs in a risk-off environment (due to trade tensions) and growing expectations for a cut in the Federal Funds Rate. The REIT segment has also continued to expand and recently saw the debut of the third US office REIT (Prime US REIT) to list on SGX – click&nbsp;here&nbsp;for more.
By contrast, the 24 Manufacturing stocks averaged a 20.8% total return in the 2019 year-to-date, with five decliners amidst the 24 stocks. The below tables are sort by total returns for the 2019 year-to-date.

Market Update - Potential Rate Cut to Support Global Manufacturers & Region 

China

Founded in 1997 and listed in 2005, Sunpower Group Limited (5GD.SI / SPWG SP) is an environmental protection company specialising in fighting air pollution using proprietary energy-saving and clean power technologies. Since 2017, Sunpower has expanded heavily into “Green Investments” (GI), its sizeable and valuable portfolio of anti-smog investment projects that generate long-term, recurring and high-quality cashflows and now account for more than half of recurring profits and cashflow. The “Manufacturing & Service” (M&S) business provides a variety of high-end customised environmental protection products and solutions to approximately 1,500 customers across 15 industries in over 30 countries, such as Wanhua Chemical, Hengli Petrochemical, CNOOC, CNPC, SINOPEC, ExxonMobil, BASF, BP, Shell, and many others. 70% of them are repeat customers.

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