STI’s gains reflect ‘concrete steps’ by Temasek companies to address business fundamentals

[SINGAPORE] Every year, as I plough through the Temasek Review, I make a note of the more exotic and far flung companies in its portfolio, and try to educate myself about their businesses and financial performance.

This year, however, I found myself looking into the recent financial performance of companies much closer to home.

During the year to Mar 31, 2025, Temasek’s net portfolio value increased S$45 billion to S$434 billion, largely due to the strong performance of its Singapore-based portfolio companies as well as its direct investments in China, India and the United States.

Temasek’s Singapore companies accounted for 41 per cent of its portfolio as at Mar 31. They included unlisted companies such as Mapletree Investments, PSA International and SP Group; and listed companies such as DBS, Sembcorp Industries, Singapore Airlines (SIA) and ST Engineering.

What drove the gains from this segment of Temasek’s portfolio? During the year to Mar 31, 2025, the Singapore market performed very well – with the Straits Times Index (STI) delivering an unusually high total return of nearly 30 per cent. The STI returned only 4 per cent during the year to Mar 31, 2024, and minus 0.33 per cent during the year to Mar 31, 2023.

In fact, some of the best performing components of the STI during the year to Mar 31, 2025, were companies within Temasek’s fold. They included ST Engineering (total return of 75.3 per cent), DBS (50.4 per cent); and Singtel (43.2 per cent). At last week’s closing prices, Temasek’s stakes in these three companies are worth about S$12.6 billion, S$36.9 billion and S$33.9 billion, respectively.

Fuelling the market’s zeal for these companies, in my view, were their strong financial performance and commitment to deliver value to shareholders. For instance, DBS announced a S$3 billion share buyback late last year, after a series of other moves to return capital to its shareholders, amid sustained elevated profitability since interest rates climbed strongly in 2022.

Singtel has also been actively returning excess capital to its shareholders, as it pursues an asset recycling programme. Last year, it introduced a “value realisation” dividend, on top of its core dividend. Earlier this year, it authorised its first share buyback programme – of up to S$2 billion.

Meanwhile, ST Engineering’s shares have been galloping in the wake of its robust financial performance, increasing dividends, and growing excitement about exposure to the defence sector. The company is now trading at 35.9 times its reported earnings for 2024.

Controlling shareholder support

The gains Temasek has reaped from its Singapore-based portfolio companies were not just the result of bullish market conditions, though. While Temasek does not direct the day-to-day operations of these companies, it actively engages them on enhancing shareholder value and strengthening their growth prospects.

Indeed, many of these companies are in strong positions today at least partly because of the backing of their controlling shareholder on strategic initiatives.

For instance, SIA might well have been destroyed by the pandemic had Temasek not supported its S$15 billion capital raising proposal. Nearly two-thirds of the funds raised were in the form of mandatory convertible bonds (MCBs) – almost all of which were taken up by Temasek, as most of the carrier’s other shareholders baulked at their terms.

With the funds, SIA managed to survive the crisis and quickly reinstate its services when international borders reopened. Its revenue and earnings soared to record levels on the back of sky-high fares. By the middle of 2024, the airline had redeemed all the MCBs.

For its financial year to Mar 31, 2025, SIA’s revenue climbed a further 2.8 per cent to another record level of S$19.5 billion. Its operating profit, however, fell 37.3 per cent to S$1.7 billion. Still, SIA’s shares delivered a total return of 14.4 per cent during the 12-month period. Temasek’s stake in SIA is currently worth about S$11.6 billion.

In another case, Temasek helped Sats finance the acquisition of Worldwide Flight services in 2023. The in-flight caterer and ground handler suffered a big sell-off when it first announced the S$1.8 billion deal in September 2022.

In February 2023, Sats said it would raise S$798.8 million through a 323-for-1,000 rights issue of new shares at S$2.20 each to help finance the purchase, with Temasek committing to taking up its pro rata 39.7 per cent entitlement.

Two years on, Sats seems to be taking off. The group reported a 13 per cent rise in revenue to S$5.8 billion for its financial year to Mar 31, 2025. Its earnings more than quadrupled to S$243.8 million, on the back of economies of scale, integration synergies and enhanced operational efficiency.

Sats’ shares chalked up a total return of 19.5 per cent during the year – versus a total return of minus 6.8 per cent for the year to Mar 31, 2024, and minus 32 per cent for the year to Mar 31, 2023. Temasek’s stake in Sats is currently worth about S$1.8 billion.

‘Concrete steps’ on fundamentals

The role Temasek has played in the various strategic initiatives of its Singapore-based portfolio companies casts an interesting perspective on the performance of the local market since the pandemic.

While some market watchers – including this column – have attributed the STI’s recent climb past the 4,000 mark to geopolitics and other global factors, the efforts of some leading Singapore-listed companies to unlock value and develop new growth drivers should not be overlooked.

Indeed, the STI’s current uptrend might be attributable to some of the biggest companies in the local market having successfully repositioned themselves to thrive in a less globalised and more fragmented world.

“Following Covid, our portfolio has become more resilient compared to pre-Covid times because it was a period when our portfolio companies took very concrete steps to strengthen their business fundamentals, including the strength of their balance sheet and capital allocation, so that they could strengthen their core,” said Temasek deputy CEO Chia Song Hwee last week, while responding to a question about engaging with its Singapore companies.

The equities market review group formed by the Monetary Authority of Singapore last year has announced a slew of measures to catalyse demand in the local market, and attract more new listings. The strong contribution Temasek’s Singapore-based portfolio companies have made to its recent performance suggests that it might also be worth looking into ways to encourage companies to unlock value and strengthen the long-term fundamentals of their businesses.

One idea is for Singapore to come up with its own version of South Korea’s “value-up” programme. Earlier this month, South Korea tweaked its laws to better protect the interests of minority investors and lift its market valuations.

If more companies in Singapore pursue initiatives that keep their shares on an upward trajectory, investors like me might have less reason to look to other markets for opportunities.