AEM has been back in favour with many in the market in recent weeks as its turnaround story has become increasingly clear. On April 25, Tng raised his target price from $4.86 to $10.15 — topping his peers’ by a wide margin. Other analysts such as Amanda Tan of DBS Group Research, and the Jefferies’ duo of Joanna Cheah and Wei Han Ang are similarly upbeat, but with more conservative respective target prices of $8.90 and $8.88 respectively. Besides higher earnings expectations, Tng has applied a higher valuation multiple to bring AEM’s valuation to what its peers are already fetching.
Following Tng’s April 25 call, AEM’s share price jumped by another quarter to close at a new record of $7.72 on April 29, extending a gain of 343.68% year to date, and lifting its market cap of nearly $2.5 billion.
“AEM is at an inflection point,” he says, “There’s also a lot of excitement at this point over what they can do, maybe over the next three to five years, which is why you’re seeing that share price reaction.”
“That share price reaction is trying to price in a lot of the positive things that may happen to the stock in the next three to five years, which is a challenge,” he adds. “It goes back to the inflection point. How much is the earnings base that you can actually look at… that is the difficulty currently.”
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Just days later, on April 27, Tng similarly more than doubled his target price on engineering firm ISDN Holdings to 96 cents from 44 cents. The engineering firm’s FY2025 earnings were weighed down by currency woes from its hydropower business in Indonesia.
However, Tng is confident that ISDN’s core industrial automation — a big chunk of it based in China — will do better due to “resilient” demand, justifying a higher target price. ISDN shares, previously thinly traded, gained nearly a third after Tng’s call to close at 61.5 cents on April 29, extending a gain of over 57% year-to-date.
“Tech stocks generally tend to be like that. [They have] high beta. The reactions can be exaggerated on the way up or on the way down,” he adds.
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Tech and SMIDs
Tng entered the industry in 1997, just as the Asian Financial Crisis unfolded — an episode he considers more as a currency crisis. Banks were trading below par value, which is “ridiculous” given how cheaply they were being sold. “I started at the wrong time,” he says.
At the time, Tng covered mainly tech manufacturing names, with “easily” 30 to 40 listed on the Singapore Exchange (SGX). Most have since been delisted or privatised as Singapore became too costly for manufacturing.
With many of the tech names no longer around, Tng moved on to covering small- and mid-cap stocks (SMIDs), which he defines as companies with market capitalisations of $200 million to $1 billion. He has not looked back since.
To him, the sector is “challenging and interesting” because there are different things to look at each day. Companies are also varied, he adds, citing examples such as AEM and Sarine Technologies, a niche provider of technology to rate diamonds.
“If you are curious and don’t mind jumping all over the place, it’s quite interesting, because you get to meet different professionals in different industries every day,” says Tng. “However, the challenging part of that is, it’s hard to specialise, because it’s not very practical for you to spend all your resources on one company or one industry.”
From the doldrums of just two years ago, the market has entered its most exciting phase since he joined the industry, buoyed by the $6.5 billion Equity Market Development Programme (EQDP), which has helped lift the Straits Times Index to a record.
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However, Tng believes more can be done. The government, he adds, has solved the easy bit by providing money to address the market structure. Now, companies have to step up and do their part. “If you look at Japan, they’re very adamant about revitalising their market. You want an exchange that’s of quality.”
Companies are now encouraged to communicate more, including by providing guidance. For years, many have held back, he says, due to concerns over potential legal repercussions and a reluctance to be first movers. He believes government-linked firms should take the lead, so smaller-cap peers feel more comfortable following suit.
“[They] need to grow up and stop hiding behind,” he says. “They can state their concerns, but it’s fair game to give guidance. US-listed companies always give guidance, and it helps. If you’re not in the industry, it’s hard to forecast some of these companies’ profits and order book.”
Not giving guidance, he adds, does companies no favours either. When a sell-side analyst’s estimates miss by a wide margin, this will serve neither the company nor its investors. “The market itself has to grow up. It’s been so many years already, you cannot keep relying on the regulator to do everything for you,” he says. “Especially nowadays, there are so many resources and research widely available. SGX also introduced the GEMS (Grant for Equity Market Singapore) research scheme that gets more people to publish unrated or rated reports.”
Investors, he adds, also have to do their part. Traders or speculators will have to bear the risks, while genuine long-term investors will have to do their research and read up on a company’s fundamentals and announcements. “So the companies need to step up communication to update investors on what’s going on. Don’t only announce guidance when times are good or disappear when times are bad.”
Tng acknowledges that the authorities are making an effort to encourage companies to be more transparent or improve investor relations behind the scenes. “Everyone is doing their part to ensure the market is actually vibrant… Even those who have doubts or are sceptical, at least they’re voicing their concerns. So you know at least they care.”
To Tng, Nanofilm Technologies International, which has stayed open. Almost right after its much-hyped October 2020 IPO, its earnings disappointed. Yet, the management team remained accessible to analysts. “They’re not doing well, no doubt, but if you want to meet them, they’re willing to meet you and share the challenges they’re facing.”
Fundamentals first
Before initiating coverage, Tng first looks at companies and sifts out the ones he finds interesting, such as the ones that are trading below book or may have earnings recovery.
As a sell-side analyst, Tng tends to take on the bottom-up approach. “After you analyse the companies, I would say probably you start with [things] like the [company’s] total addressable market, where they play, and so on. And then we can move on to the other thing that is quite key, which is the management. The integrity of the management team, corporate governance [and] what are the management’s ambitions.”
Just like how he re-rates AEM, he looks at the companies’ P/E multiples, where it is trading relative to their history and peers and relative to where they think the stock can go.
Tng also prefers to meet the company’s management team at least once before issuing a report to give the other party a chance to share their views. “We’re willing to meet as long as you’re willing to meet,” he says, referring to even the smallest of companies with just a few million in market capitalisation. The same rule applies even to non-rated reports, which are notes that stop short of a formal initiation.
Market outlook
With the EQDP now raising most companies’ valuations, Tng is more selective in his stock-picking process. “Generally speaking, it is a bit harder, relatively speaking, compared to last year. Valuations were generally much lower when the EQDP started to kick in last May.”
“If you look at it, some of the numbers, even for tech manufacturing stocks, some of the Malaysian names and other names, we’re actually more or less on par,” Tng adds.
Still, pockets of opportunities remain. For instance, there are a few smaller names in construction and oil and gas that may be worth looking at, although Tng declined to share specific names, simply because these companies do not meet analysts’ expectations. “Company visits are very important,” he continues.
To him, the next six to 12 months will still be “quite positive” for the Singapore market as the EQDP has established a “certain base” already. As such, the analyst sees “quite a fair bit of bullishness”.
Near-term risks remain, however. Companies may see “some impact” on earnings in the second quarter of this year due to the Iran conflict, since costs increased. In the longer term, Tng does not see a “doomsday scenario” just yet as the Singapore government should have the means to support businesses where need be, due to a surplus in the country’s coffers.
He also doesn’t see much impact in terms of SMIDs’ share price and valuation, although he acknowledges that prices would have dropped a lot more without the EQDP. The strong Singapore dollar, the city-state’s safe haven status, has also helped.
The EQDP has also brought about a shift in investors’ interest; Tng says he is seeing more engagement and interest from fund managers. Before last May, Singapore stocks attracted scant interest, especially from overseas investors. “Now, almost every day, someone is reaching out to us for these.”
For younger investors who have historically gravitated towards US or Chinese equities, Singapore’s improved valuations and liquidity support offer a reason to diversify. “If your portfolio has historically been 100% US concentrated, you can now consider having some portion of that in the Singapore market,” he says. “These few years should be alright because you have a lot of liquidity support.”
Ultimately, Tng’s hopes for the market are simple: more listings and better communication. He wants to see more quality IPOs — especially in tech and software — and for listed companies to improve accessibility to investors.
To these firms, Tng says they should make use of the markets; after all, that’s why these companies chose to list. “[It’s] a listing avenue for you to raise capital to expand and grow the business. So you should have plans.” a
