Broadening bullishness may support interest in new listings, including those headed to Catalist

[SINGAPORE] The Singapore market seemed unstoppable last week.

The Straits Times Index (STI) pushed past 4,000 on Wednesday (Jul 2), and closed above that key threshold for three straight trading days. It ended Friday at 4,013.62 – up 1.2 per cent for the week, and up nearly 6 per cent since the beginning of this year.

It was not the largest components of the STI that drove the rise, though. DBS, OCBC, UOB and Singtel – which together account for nearly 60 per cent of the benchmark index – were all up by much less than 1 per cent last week.

Instead, property stocks trading at huge discounts to the value of their underlying assets were among the biggest gainers – which seems remarkable given the increased seller’s stamp duties on residential properties announced late on Jul 3.

Hongkong Land ended last week up nearly 8.6 per cent. UOL Group was up 6.4 per cent. City Developments climbed 4.9 per cent.

Other components of the STI that rose significantly last week included DFI Retail Group (up 5.5 per cent), Sembcorp Industries (up 4.5 per cent), Jardine Matheson (up 3.2 per cent), and Singapore Exchange (up nearly 3.1 per cent).

What is pushing up the Singapore market? One theory I keep hearing is that the S$5 billion the Monetary Authority of Singapore will soon inject into the local market under its Equity Market Development Programme is fuelling a general sense of optimism.

Another view – which this column has previously expressed – is that policy uncertainty and relatively high stock valuations in the United States is driving global capital to markets in Europe and Asia. While the S&P 500 is up 6.8 per cent so far this year, the US Dollar Index has slumped 10.6 per cent.

Whatever the case, it might be appropriate for investors to adopt a less defensive posture – by focusing less on big, dividend-paying stocks and taking a chance on companies that have the potential to unlock value and deliver strong growth.

On the other hand, corporate boards should perhaps prepare themselves for more scrutiny – especially if their companies’ shares do not keep pace with the wider market.

Catalist revival?

Last week, Info-Tech Systems – the first company to list on the mainboard since 17Live Group in late 2023 – had a reasonably strong debut. The next new listing on the mainboard is likely to be NTT DC Reit, which lodged its preliminary prospectus on Jun 27.

With the more bullish market tone, there could well be stronger investor interest in companies headed to the Catalist board too. This, in turn, might spur renewed interest in some of the companies that listed on Catalist over the past couple of years.

For instance, commercial interior decorator Attika Group, which listed on Catalist in November last year following a placement at S$0.22 per share, could be viewed as a benchmark of sorts for interior fit-out players Lum Chang Creations and Dezign Format Group, which filed preliminary prospectuses for Catalist listings last month.

Attika suffered a slump in profitability in H2 2024 due to difficulties with a corporate office project, but the group still managed to report a 23.7 per cent increase in full-year earnings to S$2.8 million on a 105.9 per cent jump in revenue to S$55.5 million. Separately, the company has said it will venture into the property development and investment field.

On Friday, Attika’s shares closed at S$0.30 – which puts its market capitalisation at S$40.8 million.

Another Catalist company that might shine in a risk-on market is Winking Studios, a game art outsourcing company that is majority owned by Acer. Winking was listed in November 2023, following a placement at S$0.20 per share.

For 2024, the company reported an 8.9 per cent rise in revenue to US$31.9 million, and a 70.5 per cent fall in earnings to US$500,000. The weaker profitability belies the group’s inorganic growth, though.

During the year, Winking acquired a Taipei-based studio called On Point Creative for NT$59.9 million, and Kuala Lumpur-based Pixelline for US$1 million. In January, Winking said it would acquire another game art outsourcing studio called Shanghai Mineloader Digital Technology for 146 million yuan.

The group has also been tapping investors. In July, it raised S$27 million through the placement of 108 million shares at S$0.25 each. In November, Winking raised a further £7.9 million through the placement of 52.7 million shares at £0.15 apiece, and obtained a dual listing on the AIM Market of the London Stock Exchange.

Winking’s shares ended last week at S$0.225, which puts its market capitalisation at S$99.1 million.

Then there is Goodwill Entertainment, the operator of the HaveFun chain of karaoke outlets, which listed in November last year after selling shares to investors at S$0.20 each.

Goodwill reported a 121.4 per cent increase in revenue to nearly S$53 million for 2024, and a 51.8 per cent rise in earnings to S$4.4 million. It ended 2024 with a net cash position of S$9.9 million.

Yet, its shares are now trading at just S$0.163 – which puts its market capitalisation at S$65.2 million, or about 14.8 times its 2024 earnings.

Shifting market dynamics

In the movie Other People’s Money, a corporate raider played by Danny Devito demands that a company he is stalking gets rid of a big loss-making business that is weighing down its stock price. The company refuses, and the president attempts to fob him off by pointing out that he has already made money from his investment.

“You bought the stock at 10. It’s now 14,” the president says.

Devito’s character shoots back: “The stock is 14 because I’m buying it. I’m doing my part. Now you do yours.”

Chronically low stock valuations across the Singapore market over the past decade arguably provided companies with little incentive to improve their profitability or growth prospects. Why bother if it will not immediately translate to higher share prices?

The result was generally poor stock returns, investor apathy, and a slump in new listings.

If the STI continues rising and bullish sentiment broadens out, however, companies large and small are likely to face more pressure from investors to find ways to unlock value and achieve sustainably higher levels of profitability and growth.

Investors entering the market at increasingly elevated levels will want assurance that the companies they own have credible plans to drive shareholder value. Companies that communicate their strategies effectively, and deliver results, are likely to be rewarded with market leading stock valuations.