Singapore Market Strategy
STRATEGY
Low solvency risk but does not mean no risk
■ Over the years, Singapore has developed from a “net-cash” market into
one with more meaningful corporate borrowings. However, with
projected net gearing of 32% for FY08, we believe that corporate debt is
highly manageable. The low loan-to-deposit ratio of 80% for Singapore
banks means they are in a strong position to extend credit. Also, interest
rates, after a brief spike, have come off significantly. Overall,
Singapore Inc. is well placed to weather the storm, in our view.
■ Our solvency screen, using the Altman Z-score, indicates that the
majority of Singapore companies in our coverage universe are in the
safe zone. The bulk of the large-cap names fall into this category.
Based on the Altman Z-score, those companies rated with a high
probability of solvency issues are Biosensors, Chartered, Hyflux Water
Trust, Asia Environment, Jurong Tech, Hong Leong Asia, Parkway and
Tiong Woon. This study excludes property and bank stocks.
■ Interest cover is relatively high for most Singapore-listed companies
under our coverage. Companies with a high percentage of short-term
debt and relatively low interest cover face higher refinancing risks, in
our view. These include Jurong Tech, Hong Leong Asia and OSIM. All
three companies have a projected FY08 net debt position.
■ Overall, the companies with higher insolvency risk include: Jurong
Tech, Hong Leong Asia, Chartered and OSIM – although Hong Leong
Asia and Chartered’s strong parent should help to mitigate the risk.
Among the property and REIT names, FCOT and Allgreen are most
exposed to refinancing issues, in our view.
■ Our top picks in Singapore remain SIA, UOB, SPH, Raffles Education
and Olam. Our least preferred names are City Developments and COSCO.

Low risk but does not mean no risk
In our view, Singapore Inc. is well placed to weather the storm – corporate gearing
remains manageable, banks have the capacity to further extend credit, and interest rates
are not prohibitive. Companies with higher insolvency risk include: Jurong Tech, Hong
Leong Asia, Chartered and OSIM – although Hong Leong Asia and Chartered’s strong
parent should help to mitigate the risk. Among the property and REIT names, FCOT and
Allgreen are most exposed to refinancing issues, in our view.
Our top picks in Singapore remain SIA, UOB, SPH, Raffles Education and Olam. Our least
preferred names are City Developments and COSCO.
Sound overall financial standing
Over the years, Singapore has developed from a “net-cash” market into one with more
meaningful corporate borrowings. However, with projected net gearing of 32% for FY08,
we believe that corporate debt is highly manageable. The low loan-to-deposit ratio of 80%
for Singapore banks means they are in a strong position to extend credit. Also, interest
rates, after a brief spike, have come off significantly. Overall, Singapore Inc. is well placed
to weather the storm, in our view.
Assessing bankruptcy risks
Our solvency screen, using the Altman Z-score, indicates that the majority of the
Singaporean companies in our coverage universe are in the safe zone. The bulk of the
large-cap names fall into this category. Based on the Altman Z-score, those companies
rated with a high probability of solvency issues are Biosensors, Chartered, Hyflux Water
Trust, Asia Environment, Jurong Tech, Hong Leong Asia, Parkway and Tiong Woon. This
study excludes property and bank stocks.
Refinancing issues
Interest cover is relatively high for most Singapore-listed companies under our coverage.
Companies with a high percentage of short-term debt and relatively low interest cover face
higher refinancing risks, in our view. These include Jurong Tech, Hong Leong Asia and
OSIM. All three companies have a projected FY08 net debt position.