It was only after the launch of the Equity Market Development Programme (EQDP) that valuations improved. Nearly a year on, the effects of the EQDP — first unveiled in February 2025 — have been “quite positive”, mainly because of the “very low base”, he says.
Cheong says that expectations were “low” at the beginning of the programme. Now, given that the market is reaching new highs and trading volume has picked up significantly among both institutional and retail investors, it is clear that the government has delivered on its promises and that things are moving “in the right direction”.
For much of the period from 2017 to 2024, the Straits Times Index (STI) had largely stagnated, hovering between 3,000 points and 3,400 points. In 2025, the STI delivered total returns of more than 20% and is now a hair’s breadth from 5,000 points. “It is very common for markets to react ahead; it is the nature of the market,” notes Cheong on the current bullishness.
More important, however, is whether the rally can be sustained as more funds enter the market beyond the the quantum disbursed under the EQDP .“Aside from consistent capital injection of this $5 billion, [investors] will need to see beyond the $5 billion. If it’s not enough, then there should be more policy changes as well,” he says, pointing to measures undertaken by markets such as Japan and Korea.
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Cheong also cautions that profit-taking could emerge if investors anticipate fewer initiatives in the future. Therefore, the EQDP needs to sustain interest and not exclude additional injections beyond the first $5 billion.
The blue chips have generally moved, but many more SMIDs have not, as many are still hoarding cash rather than putting the funds to good use. In the meantime, they depress their own return on equity, says Cheong. These companies can also help themselves by undertaking corporate actions, such as spinning off high-quality growth businesses for their own listing. Recent examples include Centurion Corporation, LHN Group and Boustead Singapore. Centurion spun off a portfolio of dormitories into a REIT; LHN spun off its co-living arm, Coliwoo. Boustead, meanwhile, is spinning off a portfolio of properties into UI Boustead REIT. On Feb 25, Boustead shareholders will be asked for their go-ahead at an EGM.
Who will benefit?
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Among the SMIDs, Cheong sees four types of companies that stand to benefit the most from the measures. The first group consists of those trading at “very, very depressed valuations”, as measured by their P/E and P/B multiples and dividend yield. These “low-hanging fruit” have already re-rated, moving from single-digit P/Es to low double-digit P/Es.
The second group are companies that have not been proactive in engaging with the market. To Cheong, listed companies have an obligation to be upfront with information as they are accountable to their shareholders, big and small. “Increasing engagement, increasing communication, increasing the transparency of their company’s strategy, those are very important things [companies] should try to improve.”
The third group comprises cash hoarders. Notably, banks and several Temasek-controlled blue chips have pleased shareholders by actively managing capital, returning excess capital through dividends or buybacks. Cheong hopes many more companies with excess cash will follow suit.
Last but not least, companies with “very valuable assets” on their balance sheets, such as property, could unlock value through various corporate actions. Cheong observes some re-rating in the sector, led by Centurion, LHN and Boustead Singapore, but he believes there is more to be done. “In Singapore, there are a lot of these companies holding very valuable assets, and maybe it’s even being valued at historical cost, not being revalued.”
What to look for?
Amid the hype surrounding the EQDP, Cheong acknowledges that some stocks may trade beyond their fundamentals. As such, investors should always focus on key metrics such as P/E and P/B ratios, price-to-earnings-to-growth (PEG) ratios and dividend yields.
Cheong, who has been an analyst since 2013, says that before initiating coverage, he reviews companies’ annual reports and financial statements, which typically form about 70% of his assessment. The remaining 30% comes from meetings with management to better understand the firm’s strategy and future direction.
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Meeting with company management teams is important, he adds. However, experienced analysts and investors should be able to form a credible opinion based solely on the annual reports and the company’s financials.
Over the years, Cheong believes he has built strong relationships with management teams at companies in cyclical industries. Some of them may have performed poorly three to five years ago, but as cycles begin to turn, experienced analysts can identify signs that the cycle may be bottoming out. This then allows them to start looking for opportunities in sectors poised for a cyclical upturn, such as oil and gas, construction, manufacturing and other commodity-related industries.
For companies at the bottom of the cycle, Cheong says the team continues to monitor them, though coverage is kept to a minimum. He adds that one indicator of a strong company is how its management manages the books during difficult periods.
That said, not every SMID presents a good opportunity. When asked about red flags, Cheong points to companies with management teams that pay themselves excessively; firms with weak balance sheets and high net gearing; companies that raise funds annually yet remain loss-making; and those with poor cash flow.
Common misconceptions
SMIDs have long suffered from a poor reputation among Singaporean investors, partly due to memories of the failed S-chips — Chinese companies listed on the SGX — which were plagued by widespread business failures, lapses in corporate governance and, in certain cases, outright fraud. The 2013 penny stock saga involving three counters, Blumont Group, Asiasons Capital and LionGold Corp, didn’t help either.
“These two sagas wiped out quite a lot of wealth. After that period, we had a whole decade of delistings: 10 to 20 companies sought to delist since 2015. There have been 150 to 200 delistings so far,” Cheong recalls.
The chill that descended on large swathes of the market caused many high-quality companies to suffer unduly depressed valuations, leading to a string of delistings. Cheong is optimistic that some of them could return if valuations improve. “The EQDP is a good start in increasing interest levels of investors and increasing valuation in the market. Hopefully, more people will take the stock market as a serious asset class,” he says.
Portfolio allocation
When it comes to investing, Cheong advises investors to start with mid-cap stocks. While blue chips may be safer, they are often widely held and well covered, limiting potential upside.
Mid-cap stocks, however, offer a sweet spot where undervalued opportunities can still be found without competing directly with large institutional investors. Cheong notes that his first investment was in a SMID stock. “If you look at big caps, you’re fighting against all the big boys already, and with small initial capital, that gives you the entry to all these small caps, where not many people are looking at it, especially the bigger funds, so you’re not fighting in a very crowded market.”
Younger investors with a longer investment horizon should allocate more than 50% of their portfolios to SMIDs, while older investors should limit their exposure to about 20% to 30%. Property, Cheong adds, should not make up a large percentage of young investors’ portfolios.
Role model
From his perch running UOB Kay Hian’s SMID coverage, Cheong recommends food and beverage company Food Empire, which is “still very misunderstood” and seen as a “high risk business” due to its high exposure in Russia and Ukraine.
“Investors have overlooked the fact that Food Empire has survived multiple crises in Russia and has emerged stronger as a leading coffee mixed brand in the region thanks to its strong management team, which emphasises brand building and building market share,” says Cheong.
“The non-discretionary nature of its instant coffee products, which enables it to pass through extra costs and active shareholder value creation in share buyback and generous dividend payout, has also been overlooked,” he adds.
In his latest report dated Jan 14, Cheong has a target price of $3, pegged to Food Empire’s FY2026 P/E of 19 times, or 1.5 standard deviations (s.d.) above the company’s long-term historical mean.
While Food Empire’s last closed price of $2.97 as at Feb 10 leaves little room for upside, Cheong sees further room for re-rating given that the stock is trading at around a 20% discount to its regional peers’ average P/E of 25 times. Food Empire is also able to deliver superior growth and dividends, says Cheong.
Beyond Food Empire, Cheong is also exploring opportunities in the construction, logistics and manufacturing sectors. Ultimately, Cheong advises investors entering the SMID space not to shy away from risk, but to do their due diligence. “In this day and age, finding information is very easy. So do proper research and always rely on fundamental analysis — that should be the foundation.”
“Do also take a medium- and long-term view and not [look for] short-term gains. Younger investors should also not be afraid to take risks, because they will gain more experience from losing than from winning … As you increase your experience through proper investing, it should serve you very well,” he adds.
Older investors, too, should not rule out SMIDs, as alphas can still be generated there.
