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16 Investment Ideas for 2016 Outmaneuver the investment chimps even when the markets go bananas
Real Estate Accounting Engineering Architecture MICA(P) 244/07/2011 KDM No: PPS1645/3/2008
manpower headache
DBS doubles down on digital
Singapore’s productivity conundrum Asian casinos
Plus:
+rankings
A depressing
betting big
FROM THE EDITOR About Us
As the year 2015 draws to a close, we want you to welcome the Year of the Monkey with a few investment ideas that will help you reel in heftier returns. We talked to several financial consultants and asset managers and came up with a list of 16 investment ideas that will make you a winner this 2016.
The Singapore Business Review is the highest circulating and best read business magazine in Singapore with a circulation of 24,688 copies audited by the Audit Bureau of Circulations Singapore. Our online readership is an average of 215,000 monthly unique viewers according to Google Analytics. Do reach out to us if you would like us to tell your story to our readers via print & online advertising or events. Publisher & EDITOR-IN-CHIEF Tim Charlton production EDITOR Roxanne Primo Uy ART DIRECTOR Bryan Barrameda EDITORIAL ASSISTANT Ephraim Bie ADVERTISING CONTACTS Rochelle Romero rochelle@charltonmediamail.com Rizelle Rojo rizelle@charltonmediamail.com Trishia Garduño trishia@charltonmediamail.com ADMINISTRATION Lovelyn Labrador lovelyn@charltonmediamail.com ADVERTISING advertising@charltonmediamail.com EDITORIAL editorial@charltonmediamail.com
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In this issue, we also feature a couple of stories about how Singapore will be like ten years from now. Online sales will triple to $3.8 billion by 2025 - proof that the screen-browsing, smartphone-tapping tribe will surely take over the town. Switzerland could also lose its trading crown to Singapore, as the latter is predicted to handle 30% of global agricultural commodity trade. We also did a comprehensive report on Asian gaming and found out that with dozens of new integrated resorts set to open in the coming years, competition is heating up even more. In fact, an analyst predicts the number of casinos in Asia is expected to increase from 200 to 230 over the next five years. Find out who will be the winners and losers in this brewing battle. Enjoy the issue!
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SINGAPORE BUSINESS REVIEW | JANUARY 2016 1
CONTENTS
CoVER STORY
30 16 smart investment choices in 2016 to come out ahead of the monkey pack FIRST 08 Who’ll win Singapore’s pay TV market race?
09 A great manpower headache 10 Swiss Miss: Singapore nabs trading crown
14 E-shopping to explode by 2025
Published Bi-monthly on the Second week of the Month by Charlton Media Group 101 Cecil St. #17-09 Tong Eng Building 2 Singapore SINGAPORE BUSINESS REVIEW | JANUARY 2016 069533
21
abacus How badly can Uber dent ComfortDelGro’s profits?
REGULAR
rankings
22 Financial Insight
38 Accountant demand to keep beating supply beyond 2016
24 Economic Insight
42 Engineering sector losing its glam
36 Legal Briefing
40 CMO Briefing
as a “cool” career
44 Healthcare architects steal the
12 Will Hong Kong’s house prices fall harder than Singapore’s?
34
RANKING: Property agents get shoved as clients turn to self-service
spotlight in Singapore
ANALYSIS 46 Asian casinos stack up for
brewing battle
For the latest business news from Singapore visit the website
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SHIPPING & MARINE
NOL sinks deeper into the red as losses balloon to US$96m in Q3 Temasek-owned container shipping company Neptune Orient Lines reported substantially larger losses from July to September this year, as weak global trade demand led to a steep contraction in freight rates. NOL’s net loss swelled to US$96m in Q3, a huge leap compared to a loss of just US$23m in the same period last year. The group also posted a core EBIT loss of US$66m this quarter.
HR & EDUCATION
Here’s why you are more likely to get a job in 2016 2016 is expected to be a year of stability and steady growth for Singapore with recruitment activity broadly positive, reports Michael Page’s 2016 South East Asia Salary & Employment Outlook. Financial companies continue to attract talent particularly for private banking, risk audit and compliance, while the technology, healthcare & life sciences sectors continue to remain competitive.
RETAIL, TRANSPORT & LOGISTICS
SingPost set to develop Singapore’s first “smart mall” Being a technologically advanced nation compared to its global peers, it logically follows that the city-state would benefit from a shopping mall with eCommerce logistics solutions. Seeing this opportunity, the Postman plans to redevelop the new retail mall at the Singapore Post Centre to offer greater convenience, choices and experiences to consumers by providing online e-merchants.
MOST READ COMMENTARY 3 types of leaders for improved organisational competitiveness BY JEAN-FRANÇOIS
COUSIN Singapore was ranked the second most competitive country worldwide, in the World Economic Forum’s “Global Competitiveness Report 2015-2016” released on 30 September. Yet there’s no time to rest on laurels, because “the easy part of growth in Asia is over” as a Singapore-based investment banker told me recently.
100 years of innovation and counting – can a company live forever? BY SHEERHAN BIN
JEAUDEEN It is remarkable how rapidly Singapore has advanced in the past five decades. As the year draws to a close, Singapore is on the cusp of entering a new half century of development and change. As I look back at how our organisation have been able to extend their longevity over the decades, I ask myself: Can a company really live forever, and how?
The changing nature of the wealth management client BY DOMINIC GAMBLE Digital adoption is not only creating a new class of wealth management client, but is changing existing ones too. The Internet and digital technology has transformed almost every industry. Internet penetration in Singapore is at 82%, while growth throughout Southeast Asia is at 12% with the biggest acceleration, interestingly, occurring amongst the low-income bracket.
Agenda PEOPLE | PLACES | SERVICES | OPPORTUNITIES
Places PLACES
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Millennium Hotels and Resorts is an owner-operator of high quality branded hotels in diverse locations attractive to business and leisure customers, SERVICES with a particular focus on significant gateway cities and Asian emerging LexisNexis markets. We pride ourselves on our dedication to excellent service, attention LexisNexis is a leading global to detail and sophisticated amenities provider of content-enabled workflow for business, sports, families and more. solutions designed specifically for professionals in the legal, risk For more information on the group’s management, corporate, government, hotels, visit www.millenniumhotels.com. law enforcement, accounting and academic markets. We provide research and analytical solutions for Knowledge –Driven Professionals and help them achieve excellence. LexisNexis serves customers in more than 100 countries with 18,000 employees worldwide. Our service contains more than five billion searchable documents from over 32,000 legal, business and news sources and SERVICES 19,000 databases.
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OPPORTUNITIES
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co-published Corporate profile
Working mums and their post-retirement lifestyle: Only a dream?
AIA Singapore shares some things to consider to achieve your retirement dream.
I
t’s not easy being a working mum. Work, kids and ageing parents seem to demand all of our attention right now, there’s hardly any time to think about ourselves and our future. In fact, 75% women have not started planning for retirement and only 25% thinks she will have sufficient funds to lead her ideal retirement lifestyle, found the recent Singaporean Mums Retirement Aspiration Study 2015 conducted by AIA Singapore in conjunction with theAsianparent.com. But with longer life expectancy1 and greater likelihood to take career breaks to care for our children, as well as the shrinking families in Singapore, it is especially important for women to start planning early for financial adequacy in their golden years. Here are three steps to help you achieve your retirement dream: Step 1: Identify your retirement goals Use an online financial calculator to work out how much money you will need to set aside to lead your desired retirement lifestyle. Here, it is important to be realistic. 69% of mums believe they will need less than S$3,000 and 38% believe that they will need less than S$2,000 to cover monthly expenses after they retire. However, average household expenditure for Singaporeans is S$4,7242. Step 2: Assess your current situation Engage your financial adviser, who will be able to help assess your current financials, such as how much you can expect from your savings account, CPF savings, insurance policies and investments when you retire. During this assessment, it is key to include any outstanding loans and liabilities before retirement, and minimise debt obligations during your golden years. Also, do include the amount you need to set aside for your dependents, such as your children’s education and protection needs. Step 3: Get started on your retirement savings plan Once your financial assessment has been completed, your financial adviser will be
able to advise on suitable insurance and financial plans that can help you achieve your financial goals, while keeping your available budget in mind. 3 things to consider First, consider Central Provident Fund (CPF) Life and insurance plans to complement each other. CPF Life provides a lifelong monthly payout starting from your payout eligibility age. Singaporeans can expect to receive S$650-S$1,900 per month from their CPF Life payouts, based on the 2015 Proposed CPF Retirement Sum Changes3. However, based on the working mums’ expected retirement income of less than S$3,000 per month, this still works out to an income gap of about S$1,100-S$2,350 per month. Singaporean women may want to consider supplementing their retirement income with insurance plans that can help to meet their retirement needs. The enhanced AIA Retirement Saver (II) is suitable for those who are looking for stable returns and are looking for a plan that provides them with a guaranteed monthly stream of retirement income to complement their CPF Life payouts during their retirement years. Those with a higher risk appetite may want to consider investment-linked plans (ILPs) which combines the benefits of investment and protection. Investments to ILP Funds can over a long time help you to potentially accumulate more for your nest eggs. Second, ensure that you have adequate medical insurance coverage. According to the survey, the top 3 retirement expenses that concern mums are healthcare expenses, living in poor health and unexpected emergencies. At the same time, only 10% of mums say that they will have the means to pay for a post-cancer-diagnosis lifestyle without having to dig into their retirement savings. 50% say they will make use of their retirement savings and 40% do not know what they will do should they be diagnosed with cancer. There are options available for mums to
“It is important for women to start planning early for financial adequacy in their golden years.”
Ho Lee Yen, Chief Marketing Officer, AIA Singapore
ensure that their insurance policies’ payouts finance their medical bills in the event of any unforeseen circumstances, such as the diagnosis of a critical illness, without them having to use their retirement savings and throw their retirement plans off track. For example, the enhanced AIA Retirement Saver (II) offers the option to add the Cancer Relief Income Rider, which pays an income upon a major cancer diagnosis. This additional income stream can defray medical treatment costs or cover some of your basic retirement plans’ premiums. Lastly, ensure that you are adequately covered in the three main categories of basic insurance needs. As with most other important things in life, balance is key. Get adequately protected in the three main categories of basic insurance: hospitalisation, critical illness and disability, to ensure that your retirement plan remains on track should the unexpected happen. Conclusion What is your dream retirement lifestyle? Some want to spend time with family (77%), some want to travel the world (72%), some want to pursue new interests/ hobbies (57%), some want more ‘me’ time (52%).Whichever lifestyle you dream of, take charge and start planning today. Because we all deserve to be able to enjoy our golden years the way we want to. http://www.singstat.gov.sg/statistics/visualising-data/charts/life-expectancy-at-birth Singapore Household Expenditure Survey, conducted in 2012/2013 CPF Advisory Panel Proposals, The Straits Times, 4 February 2015
1 2 3
SINGAPORE BUSINESS REVIEW | JANUARY 2016 7
FIRST Mittal reckons Singapore had 965,000 Pay TV subscriptions as of the third quarter of 2015 with more than 80% household penetration. Netflix may be able to capture 40 to 50% of this market in the medium term, based on similar switching behaviour observed in the US and UK market. But the smaller size of the Singapore market may result in a more limited catalogue of Netflix content, thus making the service less attractive to Singaporeans.
JOB-HOPPING ITCH
Singapore’s millennials are getting bored with their current jobs, and nothing’s stopping them from pursuing something completely different. These yuppies, born between 1980 and 2000, have also been known to try out a myriad of roles—and finding those which fit them best—compared to their older counterparts, with three in four already wanting to do something different, according to a survey by Randstad. The city-state’s millennials are itching for something new and fresh, as 28% of those polled cited a personal desire for change. Immense confidence While the fact that these yuppies are job-hopping aimlessly may seem compulsive, the study says part of the phenomenon stems from millennials having immense confidence in their job prospects with 82% assuming they would find another job within six months. “The results show how ambitious and mobile this generation of workers is, highlighting the need for employers to create tailored engagement strategies to retain them. There are currently about 1.2 million millennials in Singapore, representing 22% of the country’s population, each with a different career outlook compared to the generations before them,” says Jaya Dass, country manager for Randstad Singapore. Dass emphasises that the island nation’s millennials have higher expectations of themselves and their employers, mirrored by their tendency to seek greater challenges and place more importance on the type of work they do. The survey also showed that 92% focused on job content when looking for a new role.
8 SINGAPORE BUSINESS REVIEW | JANUARY 2016
Will pay TV subscribers drop the service?
Who’ll win Singapore’s pay TV market race?
F
or years, Singapore pay TV operators have felt like punching bags, taking heavy revenue hits from piracy, but 2016 could be the year they finally fight back with Netflix looking to land on the island. Netflix is widely expected to tie-up with local pay TV operators instead of directly competing with them, although such partnerships are still up in the air. “Netflix has made known that it plans to enter the Singapore market next year. It will be good for the market as it adds to the availability of content that may lessen the biggest challenge facing pay TV operators in Singapore, which is piracy,” says Gregory Yap, analyst at Maybank Kim Eng. A small-scale exodus Operators though will need to watch out for the thousands of pay TV subscribers that will drop the service and switch to Netflix, as what has happened in the United States. Still, analysts believe operators can cope with this small-scale exodus. “Netflix’s impact in Singapore could be limited due to smaller scale,” says Sachin Mittal, analyst at DBS. “A key constraining factor that is likely to be seen in Singapore is the relative small market size in the country.”
Singapore had 965,000 Pay TV subscriptions as of the third quarter of 2015 with more than 80% household penetration.
Following the UK Mittal says Singapore will likely follow the pattern of the UK pay TV market where players have been able to grow their subscriber bases despite Netflix’s presence. “The US pay TV market is over five times larger than the UK’s, making content production feasible.Singapore is a much smaller market with robust free-to-air TV, and regulatory requirements may add further costs to Netflix. As such, Netflix is likely to partner with existing Pay-TV players to enter Singapore,” says Mittal. Yap notes that Singapore telecom companies have begun jostling for position to bring in Netflix. StarHub is already discussing ways to facilitate its entry. SingTel, meanwhile, has not revealed whether it is in similar discussions, but there is no overlooking the fact that SingTel Optus is Netflix’s exclusive partner in Australia.SingTel management has not ruled out an exclusive tie-up with Netflix. RHB believes such a partnership will further boost it pay TV content proposition, mitigate the threat from over-the-top streaming applications, and create stickiness.
Pay-TV market in Singapore is very small
Source: Leichtman Resarch Group, DBS Bank
FIRST Employment growth
Source: Mnistry of Manpower, Nomura Global Economics
An industry-specific approach is key
A great manpower headache
L
abour supply has been one of the most pertinent issues in Singapore, especially after foreign worker policies were tightened. According to Nomura, “Assuming no relaxation in foreign labour policy, a higher share of older workers in the workforce has contributed to the lack of improvement in aggregate productivity growth in the last few years.” The Ministry of Trade and Industry’s estimates indicate that productivity growth in exportoriented sectors rose by only 2.2% per annum over 2011-14, while
Productivity growth in exportoriented sectors rose by only 2.2% per annum.
domestically oriented sectors saw a 0.1% decline. Still, other analysts argue that the government’s plan is pointed in the right direction. Where the government can improve is introducing sweet incentives so that the bitter pill it is pushing down the economy’s throat goes down more easily. Thinking out of the box The government must think out of the box and start to question assumptions, such as why any reversal of foreign labour tightening is considered on a national scale instead of a sectoral one, says Jeremy Han,
director of corporate strategy for the Adam Khoo Learning Technologies Group. “Different industries have different needs, and Singapore does not provide manpower adequately across all sectors, thus policy makers could adopt an industry specific approach rather than a blanket policy,” says Han. The manpower headache should also be addressed not only by retraining untapped local manpower, but also by keeping the droves of young Singaporeans moving overseas in the country. “It is partially an environment crunch, not a labour crunch,” says Michael Podolinsky, a productivity guru and CEO of Podolinsky International. “Many of our best and brightest leave Singapore and study overseas where they first experience the allure of an ‘open’ environment of a big house, a fast new car, and a perceived ‘freedom’ to do or go anywhere, anytime, which is why they don’t return,” he adds.
The Chartist: Singapore’s construction sector grinds to a halt Properties have sprouted in every corner of Singapore, but takers remain few. The current slowdown in Singapore’s property market could be attributed to the usual suspects like the waning economy and skyrocketing interest rates. According to BMI Research, these factors could cause the construction sector to grind to a halt. The city-state’s construction sector has expanded by a mere 2.5%. “Subdued growth in the construction sector over the past quarters have largely been led by the private sector (mainly residential and non-residential buildings), with private contracts awarded in H115 contracting by 30.9% y-o-y, significantly lower than public construction, which declined by 16.8%,” BMI Research said.
Singapore- construction industry value, SGDbn (LHS); Real Growth, % chg y-o-y (RHS)
Year of completion of various property segments
Source: BMI Research
Source: Urban Redevelopment Authority, BMI
SINGAPORE BUSINESS REVIEW | JANUARY 2016 9
FIRST
Swiss Miss: Singapore nabs trading crown
Survey
Hail the cab apps
S
ingapore will snatch Switzerland’s commodity trading crown over the next decade, as the city-state continues to ramp up operations on the back of burgeoning Asian demand for commodities. CLSA analyst Jonathan Galligan forecasts that Singapore will handle 30% of global agricultural commodity trade by 2025, up from just 20% in 2015. Though Switzerland has long been the mecca for trading houses due to its favourable tax laws, deep banking capabilities and army of well-trained lawyers, Galligan forecasts Singapore’s commodity trading position will be cemented by improved operating conditions such as preferential tax rates for commodity traders, and infrastructure improvements. “Singapore has leveraged the changing consumption and trading habits of Asia, which still houses the majority of the global population. As the Asian consumer continues to move up the GDP/capita curve, demand for commodity-based products will only increase further,” adds Galligan. Singapore is proving that it’s on the right track and is dead set on taking its place as a major hub in Asia. Singapore ranked first in the economy sub-
Singapore is on the right track
index of the Legatum Institute’s 2015 Prosperity Index, beating 142 other countries such as Switzerland, which held the spot last year and is now second, and China, which is third. The 2015 Legatum Prosperity Index is a project by the Legatum Institute that annually ranks countries’ prosperity based on income and wellbeing. “The country has the second highest capital per worker in the world: $240,750 per worker. Forty-seven percent of the country’s manufactured exports are classified as ‘high-tech’, the third highest in the world,” says Sian Hansen, executive director at Legatum Institute.
Mobile App Watch
GetDoc helps you find the right doctor for you Say goodbye to hospital horror stories of long waiting times, unprofessionalism, incomplete check-ups and poor bedside treatments which are common experiences for many patients. IT firm, Jireh Group’s mobile application, GetDoc, matches patients’ healthcare needs with the right doctors. GetDoc, the brainchild of Woon Shung Toon and Yvonne Chong, allows users to choose from a great selection of doctors based on location, availability, specialty and insurance coverage to make instant bookings. Users can look through verified reviews on the doctors’ qualifications, ratings and comments from previous GetDoc patients. The app will also help users to keep track of appointments for their family and friends. With over 15,000 doctors in Singapore and 45,0000 doctors in Malaysia, founders said that this allows the best of them to build their online reputation and reach more patients. 10 SINGAPORE BUSINESS REVIEW | JANUARY 2016
Singapore will handle 30% of global agricultural commodity trade by 2025.
The sharing economy has arrived at the city-state, and Singaporeans are loving its transport side. While private car-sharing apps like Uber have drawn their fair share of detractors and attracted criticism, a survey by YouGov still revealed that the use of third party apps now comes second with regard to engaging a taxi, trailing behind the oldfashioned way of flagging down taxis from the street. The survey revealed that Singapore’s taxi riders have been largely lured by the convenience of using these third party apps, with 66% saying they were hooked by the userfriendly interfaces. The ability to see the availability of drivers is also a game-changer for the industry, as 59% said this is a key factor in using the service. Meanwhile, 52% were attracted by the overall convenience of getting a ride, compared to alternative ways. The last option YouGov says private car bookings have come in as the last option for choice of vehicle to book, with only 15% of those surveyed subscribing to this service. YouGov says this is interesting, as booking private car is cheaper than general taxis, and the drivers of these private cars tend to provide better service. “Another reason is that consumers feel there tend to be more available private cars than taxis, which could change in the long run if there is a fall in private car drivers or if there are more taxis on the road,” says YouGov. As these car-sharing apps spread, there is a growing demand for a framework to govern these apps.
SINGAPORE BUSINESS REVIEW | JANUARY 2016 11
FIRST
Will Hong Kong’s house prices fall harder than Singapore’s?
H
ong Kong and Singapore are often painted as regional rivals, but the two now seem stuck in the same sinking boat of housing price corrections, although Hong Kong prices are predicted to plummet with more force than Singapore’s in the coming years. Both global financial centres have hit the peak of their housing market cycles, asserts Enam Ahmed, senior economist, thematic research at Standard Chartered Bank, which will lead to Hong Kong prices falling 10 to 20% in the next two to three years, while Singapore’s already weakening prices will likely further erode by 5 to 10%. “Hong Kong and Singapore are conforming to the 18-year price cycle often seen in housing markets. These corrections should be manageable as economic fundamentals are sound and US rate rises will likely be small,” says Ahmed. “Expected Fed rate increases are hanging over housing markets in Singapore and Hong Kong, compounded by fears that Hong Kong housing is in a bubble. Prices have already peaked in Singapore and are likely peaking in Hong Kong now,” he adds. Ahmed reckons Singapore and Hong Kong are still running tight policies but could ease if house prices fall too far, which is what China and Korea have done in order
to boost housing demand and economic growth. Limiting vulnerability Both Singapore and Hong Kong have used macro-prudential policies to try to limit their vulnerability, says Ahmed, but have only seen mixed success. But between the two, Hong Kong is in a more precarious position. “Singapore does not tick as many boxes in our bubble checklist; in particular valuations are much less stretched than in Hong Kong,” says Ahmed. The predicted crash in home prices has led to fears of a recession in both territories, but this is not likely in the cards for Singapore or even Hong Kong. “We believe the moderate declines in prices we expect in Hong Kong and Singapore will not cause a recession,” says Ahmed, believing that a moderate fall in house prices has proportionally less impact on gross domestic product than a larger fall. He also says the Hong Kong and Singapore are partly shielded from the potential negative wealth effects from falling housing prices due to the hefty share of consumption goods coming from overseas. Still, should house prices adjust more drastically than the forecasts, Ahmed expects both Hong Kong and Singapore will experience a sizeable drag on their
Home price crash unlikely
economies. In Singapore, falling housing prices has contributed to a weaker housing end-market, which in turn is leading to a cooler land market. A BNP Paribas trend analysis of 185 winning sites in the Government Land Sales programme in Singapore since 2007 revealed that the land market was softer in January to October 2015 relative to 2011 to 2013, a three-year period when most bids were outright aggressive, says Chong Kang Ho, analyst at BNP Paribas.
OFFICE WATCH
Ace Group’s new two-level interlinked regional HQ One of the world’s largest multiline property and casualty insurers, ACE Group, has just launched its new 38,000 sq. ft. two-level interlinked regional HQ for Asia Pacific at CapitaGreen. According to the regional president of ACE in APAC, Juan Luis Ortega, the new office area has given them ample space for dynamic collaboration which enhances their ability to support the company’s growth strategies in the region. The interior was designed by workspace design and build specialist, ID21 Singapore. When future-proofing the interior design of the new HQ, adaptability in an ever evolving business landscape was what ID21 had in mind. The linear design application of meeting room doors and walls also blend effortlessly with the triangular “moiré effect” graphic privacy lines of operable glass panels.
12 SINGAPORE BUSINESS REVIEW | JANUARY 2016
Entertainment corner
Cafe
Massage room
Sleeping pods
FIRST NUMBERS
Local business formations
More Singaporeans tap and shop
E-shopping to explode by 2025
I
f an online shopper were to time-travel to Singapore in 2025, she would find that her screen-browsing, smartphonetapping tribe has started to take over the town. CLSA predicts that online sales will triple to S$3.8 billion by 2025 and make up more than 10% of total retail sales, up from S$1.2 billion or 3% of total retail sales in 2014. The explosion of Singapore’s online shopping scene should come to fruition if traditional brick and mortar retailers continue to feel pressure from high rents and high labour costs, which force them to raise prices and limit their displays due to constrained store space. Greater variety online Online stores, in contrast, will be able to offer not just cheaper goods but a greater variety of items, not to mention improved convenience as Singapore retailers start to leverage on the country’s strong logistics network and delivery capabilities. In fact, CLSA predicts that Singaporeans will spend 150 minutes a week shopping online in 2025, up from 75 minutes at present, with satisfaction levels surging from 51% to 80% and same-day deliveries becoming the 14 SINGAPORE BUSINESS REVIEW | JANUARY 2016
rule rather than the exception. However, the MasterCard Retail CMO’s Guide to the Omnishopper,which gathered responses from thousands of shoppers around the globe, revealed that online shopping cannot beat physical stores in two key areas. “The omnishopper chooses physical stores for better customer service and a faster, more social buying experience. This might be a contributor to e-commerce’s relatively flat growth as a share of total retail sales of 7.5% globally,” says Eric Schneider, region head, Asia Pacific at MasterCard Advisors. He reckons that brands would do well to begin harnessing big data, mobile applications and the power of social media.
Online sales will triple to S$3.8 billion by 2025 and make up more than 10% of total retail sales.
Consumers choose a mix of online and in-store shopping for select categories
Source: The Omnishopper Project 2015
Source: Hawksford
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FIRST
The 15 great engineers and architects aged 40 and under
S
kyscrapers and cutting-edge architectural designs are amongst Singapore’s most visible evidence of economic prosperity, spanning the entire length of its history and the influence of a great many different cultures. From the cool houses we marvel at to historical and iconic buildings that we recognise instantly, Singapore’s past, present and future can be told. Singapore Business Review put together a list of outstanding young people in Singapore to recognise a chosen few engineers and architects aged 40 and under that are behind buildings and homes paving the way for ingenious design and innovation to create the ultramodern cityscape that we now live in. 1 Koh Zhi Wei, 32, Manager at Beca Carter Hollings & Ferner (S.E. Asia) He has proven to be a valuable employee with stellar performance since joining the firm in 2008 and has risen through the ranks to reach the managerial position that he holds today. Some of the major engineering projects that he has been involved in include Community Hospital at Yishun; Lee Kong Chian School of Medicine, National Heart Centre Singapore, Continuing Education & Training East Campus and NUS University Town, Kaya & Angsana Residential College.
3 Tang Kai Vern, 38, Vice President (Architecture), CPG Consultants In 2009, Kai Vern completed the 200-bed Hanh Phuc Women and Children Hospital in Ho Chi Minh City. He also played an instrumental role in the team’s winning of the design competition for the Jurong General Hospital (renamed as Ng Teng Fong General Hospital and Jurong Community Hospital). He is currently the lead architect driving this high profile project towards completion. Upon its completion, the development will serve as a regional benchmark for hospital designs.
5 Ng Shao Wei, Colin, 39, Vice-President (Architecture), Surbana Jurong Shao Wei is active in designing several public housing projects for HDB Towns, some of which have obtained coveted HDB and BCA design and construction awards. Shao Wei has successfully designed and completed several interesting people-related projects such as landscaped parks and a mixeduse community centre. Amongst which is the award winning public housing Casa Clementi. He has also been involved in industrial feasibility studies and projects for JTC and Mapletree.
2 Tan Shin Wei, 36, Vice President (Architecture), CPG Consultants Shin Wei was part of the architectural team involved in the development of the iconic Gardens by the Bay, Singapore. As the project architect for the Conservatories, Shin Wei was a key member of the project from design to implementation of the development. She was also the project architect for the redevelopment of National Museum of Singapore, billed as Singapore’s largest and the most modern museum. The monument underwent 3 years of major restoration.
4 Jerry Ong, 39, Vice President (Architecture), CPG Consultants Jerry Ong is a key team member who is involved in the development of the upcoming Ng Teng Fong General Hospital & Jurong Community Hospital. He is also the design architect for Chek Jawa Wetlands. He leads a dedicated team of professionals developing the masterplan and design proposals for international projects such as the new 250 bed Sime Darby Medical Centre ParkCity in Kuala Lumpur, Malaysia and Indus Medical Campus in Karachi, Pakistan. He was involved with the design of Khoo Teck Puat Hospital.
6 Er Richard Phua, 39, Associate Director, Squire Mech Richard was the Electrical Engineer on the ITE College East and Formula One Pit Building, and coordinated site-wide utilities and designed the Low Voltage, Extra Low Voltage system and the Lighting System of the Paddock Clubs. The critical level of the electrical supply for the pit building during the race was a major challenge to him, and he had worked with the QP to design motorised changeover switches to backup the electrical supply, in case the grid supply is down during the race.
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FIRST 7 Seah Chee Huang, 40, Director, DP Architects Chee Huang was one of lead architects of Singapore Sports Hub. He currently leads another first-of-its-kind, highly complex and meaningful community development – Tampines Town Hub, a people-centric and all-inclusive integrated community destination that is expected to open in phases from 2016. He also champions a number of corporate social responsibility initiatives by the firm including Project Bus Stop, a concept bus shelter to test-bed ideas on how bus stops can be re-imagined.
10 Benson Wee, Associate, ONG&ONG Prior to joining ONG&ONG in March 2011, Benson worked at Architects 61 from 2007 to February 2011. He has been involved in a varied range of projects from residential condominiums such as Far East Organization’s Seastrand and Woodhaven; to commercial projects such as phase two of the 46-storey Marina Bay Financial Centre Commercial Tower 3; to public infrastructural projects such as the Tan Kah Kee MRT Station and the Bedok Integrated Community and Sports Complex, slated to be completed in 2017.
13 Ken Yuktasevi, Director, ONG&ONG Ken co-heads the experience design studio at ONG&ONG. His passion for storytelling and people led to a unique and compelling perspective in his work. His projects include Singapore Airlines’ new SilverKris Lounge, the new Singapore Stock Exchange, the salad bar chain SaladStop!, and multishophouse conservation project, The Cranes. Prior to joining ONG&ONG, Ken was a former director of globally acclaimed interior design company, Leo International Design Groups.
8 Yuen Yi May, 40, Vice President, Architectural, Surbana Jurong For the past 3 years, she has expanded her residential repertoire to include private residential projects in Singapore and overseas. She is the lead consultant in Watercolours EC, which is in the midst of preparing for TOP. She is also the Qualified Person for Lake Life EC. Her award-winning projects include: Marine Crescent Gardens Precinct and Clementi Meadows. The most recent design award received is the HDB Design Award 2012 (To be Built category) for Bukit Batok N1C13 and N2 C23.
11 Brandon Liu, Director, SCA Design (member of the ONG&ONG Group) Brandon has worked on numerous interior design-centric projects for high profile clients such as Singapore Stock Exchange, Cisco, Insead, Gucci Singapore, Barry Callebaut Cocoa and TCC, amongst others. Under his and his fellow director Chrisandra’s leadership, SCA design has garnered numerous accolades for their projects; these awards include the Industry Design Excellence Awards (I-DEA), the BCA Green Mark Award, and the Singapore Design Awards.
14 Mark Wee, Director, ONG&ONG Mark, chair of the Architectural League under the Singapore Institute of Architects, co-heads the experience design studio at ONG&ONG as a director. His projects include the new Botanic Garden Shops, SIA’s new SilverKris Lounge, social enterprise Bettr Barista Coffee Academy, the new Singapore Stock Exchange, the salad bar chain SaladStop!, and shophouse projects, The Cranes, which is a multishophouse conservation project, as well as House at Neil Road, which recently won the URA Heritage Award.
9 Vivien Leong, Vice President (Architecture), CPG Consultants Since joining CPG in 2011, Vivien led the team to complete the Nanyang Technological University Learning Hub in Singapore, a collaboration with Heatherwick Studio based in London, UK. A showcase for modern methods of learning and teaching, the building employs ground-breaking solutions in sustainability, construction and use of materials. The project has been awarded the Green Mark Platinum award. Presently, she is involved with the JTC Recreation Centres in Singapore.
12 Charles Lee, Director, ONG&ONG Since his entry to ONG&ONG, Charles has led many of the firm’s hospitality and residential projects, in collaboration with high-end property developers such as Millennium & Copthorne Hotels, UOL Group Limited, Far East Organization, Frasers Centrepoint, Singapore Land and Tuan Sing Holdings. His notable hospitality projects include Studio M Hotel and the Indigo Hotel chain in India, while his residential projects include Ola Residences, Adria, Meadows@Pierce, Woodhaven amongst others.
15 Tien Carolyna Jio, Senior Design Manager, ONG&ONG Prior to joining ONG&ONG, Carolyna accumulated a wealth of experience from working at architecture firms, Parsons Brinckerhoff, FPPV P/L Architects, Merat Architects and JMK Architects. Her projects span a wide range from residential and hospitality, to commercial and industrial, with a strong focus on institutional projects. Her projects include redevelopment of Sime Darby Centre into a retail mall; the development of a 16-storey hotel at 122 Middle Road Industrial; and more. SINGAPORE BUSINESS REVIEW | JANUARY 2016 17
startups
Get travellers to buy you your favorite overseas products
Trakomatic’s new technology
money by utilising their extra luggage space. Founded by Cai Li and Robi Ng, the 29 years olds were classmates. They co-founded another e-commerce startup in 2008, which taught them the entrepreneurship to to enable them to build another startup, Airfrov.
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e all have our favorite products from a particular country and through modern technology we can now buy them online. But let’s face it, shipping costs can be overwhelming. Fret no more because with Airfrov, you can get travellers to buy overseas products for you at a negotiable cost. Airfrov is a peer-to-peer shopping platform for users to obtain products from overseas by getting travellers to bring them back. Users who want something and are willing to pay just have to post their request. Travellers who are able to help will make an offer, bring the requested item back and earn extra
A demand-driven platform According to Cai, instead of the usual ‘selling’ platform, Airfrov is a demand-driven platform where requests are posted. Airfrov is the first platform to feature many new products and users start posting requests before they are even available in stores, he says. To jumpstart their operations, Airfrov took part in IdeasInc, a business competition organised by NTU in 2014. Shortly after the competition, they had secured investments from the folks at Spaze Ventures of more than $100,000. Currently, Cai said, they are still focussing on improving the user experience and building up their Android app. They are also looking at expanding to neighbouring countries in 2016 and replicating their model.
Capital Match brings P2P loans to Singapore’s SMEs
It claims of ‘disintermediating’ the banking industry by providing SMEs in Singapore with affordable debt/working capital and individual investors with attractive returns, up to 20%+ p.a.
Peer-to-peer (P2P) lending via crowdfunding for small and mediumsized businesses is already a popular practice in the US, UK and China, but is yet to catch up in southeast Asia. To take advantage of the burgeoning market in the region, 29year old Pole, Pawel Kuznicki and his French friend, Arnauld Bailly, founded Capital Match in Singapore early this year. It is an online marketplace based in the city-state that facilitates flow of funds from investors to SMEs that are underserved by banks. 18 SINGAPORE BUSINESS REVIEW | JANUARY 2016
Hassle-free experience Pawel, an ex-McKinsey consultant and Rocket Internet executive, said that its unique value proposition to businesses and investors in Singapore relies on the fact that borrowers can easily obtain access to funds at an affordable rate. Meanwhile, retail investors can diversify their portfolio -to SMEs and among many - and earn high yields. “We also run the entire process online which is hassle-free for both parties, making it a smooth experience for everyone,” he added. The founders were able to raise $1 million in a series A funding round just recently.
Trakomatic, a company which specialises in superior video analytics technology, believes that most retailers use only their sales data to get to know their customers and customer traffic. Significantly, data would be missed without taking into account other metrics like footfall, walking-pattern, most popular shelves, and interaction with products which are not part of the sales data. Hence, the only metrics the manager collects by the end of the day is numbers of transactions and total sales. The Trakomatic system aims to fill in those gaps to provide an in-depth understanding of what drives customer to the store at any point of sale. According co-founder, Allen Lim, Trakomatic enables the traditional “dumb” CCTV devices to become “smart” sensors. In turn, the company believes that businesses will reap the benefits of improved allocation of resources, improve conversion rates and measure accurately if their campaigns impact the intended target group. Every step of the way Allen argues that while there are other companies using Wi-Fi or Bluetooth for the purpose of providing mall operators and owners with consumer data, Trakomatic works by aggregating the data and is able to see every step of the customer journey. “Instead of relying on a few parameters like footfall or demographic data, we combine all relevant data in such a way that it becomes easier to make informed decisions about them for retailers. Our ability to measure large sample sizes accurately, along with high precision on age and gender recognition, gives our product a unique quality,” explained Allen. According to the founders, Trakomatic came about as a pivot from their previous company. They found themselves somewhere between a technological insight and a new market fit, which both happened to strike at the same time. In January 2013, their ideas led them to form a new company. In 2013, Spring Singapore granted Trakomatic funds of u0p to half a million Singapore dollars for the Technology Enterprise Commercialisation Scheme for R&D, and additional funds for CDG branding. They have also raised funds from several private investors and strategic partners. These grants, said the founders, have enabled their business to grow into other markets.
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FIRST The Analysts’ call
How alluring is DBS for investment?
DBS, Marina Bay Financial Centre
DBS doubles down on going digital
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hen DBS chief executive officer, Piyush Gupta stated that 2016 will be a year of robust growth for the bank, he knew he had an ace up his sleeve - a slew of digital projects that experts believe will begin boosting the bottom line next year. “Strategically, DBS is investing meaningfully in digital initiatives with the earliest fruits of labour likely to show up at least six months later,” says Carmen Lee, analyst at OCBC. Lee says some of the early beneficiaries from the bank’s digital investments will
2015 (3Q15), according to Kenneth Ng, analyst at CIMB. But analysts warn that despite these efforts, there are number of potential headwinds for the bank next year.For instance, NIMs could take a hit due to pressure from China and lower trade loans, especially with regional consumer sentiment and business prospects remaining a bit subdued. The outlook for DBS, and other Singapore banks for that matter, is uncertain due to impending interest rates hikes in the US and further slowdown in China, says Jonathan Koh, analyst at UOB Digital appears to be figuring in a KayHian. He adds that Singapore banks would have to cross their more prominent role in the DBS plan as it fingers that regional countries can looks to grow its core business by 7-8%. overcome the domestic challenges that impede economic growth. “Regional consumer sentiment manifest in improved bancassurance sales, and business prospects remain downcast. payment volumes, and sale of treasury Until economic indicators improve, we think products. DBS is also pushing to explore it is too early to jump back into banks,” says the use of mobile banking in India, which Ng Li Hiang, analyst at Maybank Kim Eng, a will expand its mass-market reach and help cautious tone expressed after DBS came out surmount its lack of branches, although with better-than-expected results in 3Q15. details of this will likely only be disclosed Other analysts have noted as well that next year. DBS business lines in consumer and wealth Digital appears to be figuring in a more management, institutional banking and prominent role in the DBS strategic plan as treasury have been showing weakness as a it looks to grow its core business by 7-8%, result of market volatility. and loans by 5%. DBS is building on the Still, there are bright spots for DBS. One momentum based around efforts to rein in of the shining spots is that management deposit costs, among other measures, which expects no significant stress across its helped it achieve its best net interest margins loans portfolio, which should keep non(NIM) in four years in the third quarter of performing loans in check, says RHB Group. 20 SINGAPORE BUSINESS REVIEW | JANUARY 2016
Ng Li Hiang – Maybank Kim Eng We raise earnings per share by 2-8% for FY15-17 after adjusting for Singapore dollar weakness, higher total income and lower overheads. While Fed-rate hikes should augur well for DBS as DBS is sensitive to the repricing interval. Management is expecting 5%/78% loan/topline growth and stable NIMs but we think NIM may be slightly dented by pressure from China and trade loans. We are also cautious as restructured nonperforming assets went up 12% quarter-on-quarter/9% year-on-year, with increases in the substandard category. Regional consumer sentiment and business prospects remain downcast. Until economic indicators improve, we think it is too early to jump back into banks. RHB Group DBS management is optimistic that the topline can grow by 7-8% in 2016 on 5% loan growth, stable NIM and low-teens rise in non-interest income. With moderate increases in credit costs and operating expenses, this should filter down to bottomline growth. We make no change to our earnings forecasts. DBS remains our preferred pick among Singapore banks. Jonathan Koh – UOB Kay Hian The outlook is uncertain with the impending interest rates hike in the US and further slowdown in China. Regional countries need to overcome domestic challenges that impede economic growth. Nevertheless, valuations for Singapore banks are attractive after the recent share price correction with dividend yield at 3.54.0%. Share price should gradually recover in upcoming results.
abacus
to cling to. According to DBS analyst, Survo Sarkar, Ezra’s marine services division, subsidiary Triyards, is the bright spot for the shipping company, as it registered increases in both Photo by Tang Yan Song / Shutterstock.com revenue and profits under the radar. “Triyards has announced close to US$600m of new order wins, and following the acquisition of Strategic Marine, also been able to diversify its Analysts warn that Uber and GrabCar’s popularity is has product offerings and win new a threat that might not be negligible for long. building contracts for aluminium is a threat that might not be omfortDelGro (CDG) craft and chemical tankers,” negligible for long. CDG’s taxi remains unfazed by third Sarkar says. party unregulated private- revenue growth has become However, Sarkar adds that net sluggish in the past few months, hire taxis popping up left and losses for the company are likely and ground checks revealed that to persist, as its marine services right, and with good reason. it’s now more enthusiastically Despite the debut of service division can only bear the brunt pushing its referral incentive providers such as GrabCar and for so long. “However, the losses scheme to recruit taxi drivers, as UberX, CDG’s idling taxi rate sits should be lower than FY15’s at zero and there’s still a queue to management observed a shorter core net loss, as subsea division hire the company’s taxi vehicles. It queue of applicants for its taxis. performance should improve to Moreover, Chen ventures that even saw a 9% YoY growth in taxi some extent and Ezra will only operating profit. As the company CDG will struggle in enforcing its be recognising 50% of the losses, management stated, the impact taxi hirers’ compliance with the as the subsea division will be of unregulated private-hire taxis is LTA’s Taxi Availability Standard, accounted for on the JV line,” a prerequisite for annual fleet negligible thus far. Sarkar adds. Meanwhile OCBC expansion of up to 2%. OCBC analyst Eugene Chua is analyst, Low Pei Han adds that In either case, CDG’s best singing the same tune, citing that there may still be hope for Ezra’s bet for increased profitability fleet expansion coupled with disappointing subsea division, renewal of taxi fleet in Singapore continues to be possible legislation as it enters a partnership with to either regulate or deregulate all Chiyoda. “More specifically, it will continue to drive CDG’s taxi taxi service providers. revenue growth on increased seeks to leverage synergies with rental rates. Further, CDG already Chiyoda to competitively bid Ezra’s subsea division hits has the capacity to break into for larger and more complex the private-hire taxi industry with an iceberg tenders,” Low adds. It’s becoming harder for the its fleet of older vehicles if not shipping firm to keep its hopes for the risk of affecting its core Could improved load factors regulated taxi business by running up after it registered a net loss save the day for SIA? of US$7.8m, when discontinued afoul any regulations. Analysts are upbeat at how On the other hand, Roy Chen, operations bombarded the optimistic SIA’s load factors company following its partnership are looking right now, and an analyst at CIMB, notes that with Chiyoda. With Ezra’s ship while CDG’s 9M15 profitability Singapore’s flag carrier is hoping sinking, analysts are saying one appeared unaffected, Uber and that it would eventually lead the GrabCar’s burgeoning popularity lifeboat remains for the company airline company into the black.
How badly can Uber dent ComfortDelGro’s profits?
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SIA’s parent operations were $2m in the red in the previous period, excluding $110m in slot compensation, while it has improved by 7.4ppt in the current period, according to UOB Kay Hian analyst K. Ajith. “Thus, unless SIA’s pax yield declines by more than 9% qoq, the parent airline is likely to be profitable in the current quarter,” Ajith says. Meanwhile, Ajith says there are more reasons to be optimistic for SIA, as IT-related shipments such as iPhones and electronic gadgets have also been boosting SIA’s cargo loads, but the improvement comes on the back of reduced cargo yields. “Cargo loads to South West Pacific, Asia and Africa have improved, despite a decline in the Europe and US markets,” Ajith adds. “With cargo load factors still 0.8ppt lower than in 1QFY16 (61.1%), we expect cargo operations to continue to be in the red.” Maybank Kim Eng analyst Mohshin Aziz concurs, and notes the contrast between passenger growth and languishing cargo numbers. “The cargo market was less buoyant as its load factor shrank 1.7ppts y-o-y to 60.3%. Load factor has been languishing at its 5-year low mark since Apr 2015. Cargo capacity grew 2.6% y-o-y in 2QFY16. Management pointed to a weak air-freight industry that is suffering from overcapacity. This was its best quarterly load factor since it started publishing the information. “Traffic growth was flat as ASK shrank 0.1% YoY,” Aziz says.
SINGAPORE BUSINESS REVIEW | JANUARY 2016 21
FINANCIAL INSIGHT: Private Equity
The region has been brimming with investments
Private equity firms take a field day in Southeast Asia
PE firms itching to spend their cash reserves outside of China are finding lucrative openings in Southeast Asia’s increasingly volatile markets.
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hen cash-flush private equity (PE) firms scanned possible targets beyond their usual haunts in China, they were pleasantly surprised to find Southeast Asia’s change from an investment minefield to a flower field. Not only has there been a surge in PE interest among Southeast Asian companies due to a constriction in traditional financing options, but the promise of returns has become more fragrant than ever. Given this backdrop of blooming Southeast Asian activity, valuebuilding is critical for PE firms and success on this front may hinge on how effectively they can employ portfolio activism. “We are seeing record levels of dry powder across Asia. Private equity and venture capital fundraising in the region
22 SINGAPORE BUSINESS REVIEW | JANUARY 2016
The second quarter of 2015 was a high point for Southeast Asia, with a total of 42 PE transactions, an almost 50% increase compared to the same period in 2014.
continues to remain active with many firms exceeding its target for pan-Asia or country specific funds. We expect the rise of cross-border transactions to continue and secondary buyouts will remain a popular option to refurbish portfolios,” says Kevin Poa, principal at Baker & McKenzie.Wong & Leow, member firm of Baker & McKenzie in Singapore. Southeast Asia emergence While greater China continues to dominate the Asian PE market, 2015 saw a spike in the number of PE deals executed across Southeast Asia not seen since the global financial crisis hit. “This reflects the continued increase in appetite that PE is demonstrating across the region,” says EY in a PE report published in September
2015. The second quarter of 2015 was a particular high point for Southeast Asia, with a total of 42 PE transactions completed in that quarter, an almost 50% increase compared to the same period in 2014 when only 29 deals were completed. The level of equity also ballooned in the same period with a total of US$740m invested, compared to US$475m.“We are in a period of volatility in Southeast Asia. This creates opportunities for PE investment as companies will need to raise capital, which may not be forthcoming from traditional sources,” says Luke Pais, Asean leader, M&A and private equity at EY. While chasing opportunities, PE firms must be wary of rising asset prices and heavy competition, which could make it more difficult to close purchase transactions. “We are seeing both strategic companies and private equity firms interested in many of the same assets, including direct investments and co-investments made by pension funds, which have a long-term investment horizon,” says Poa.
FINANCIAL INSIGHT: Private Equity Poa reckons that PE firms have been gorging on deals in several promising sectors. Singapore and Southeast Asia have been seeing more mid-market deals in the consumer goods and retail space, with tech and industrials also holding some promise. Meanwhile, in Hong Kong, real estate remains one of the more attractive sectors with a steady number of buyouts and exits. Sector assessment In contrast, PE firms are having a harder time investing in the ecommerce sector due to a limited number of sizeable and profit opportunities in Southeast Asia. “However, as ecommerce across the region is still at an early stage of development and driven by the fact that ‘winners take all’, there are highly attractive potential returns from investing selectively in this space,” says Joongshik Wang, Asean leader, corporate finance strategy at EY. PE firms must also keep an eye out for when Southeast Asia’s real estate gains steam, which may be sooner than later. While the sector has seen asset inflation amid weakening currencies and relatively cheap capital availability, prices have started to come off their peak recently. “A further weakening in asset prices is expected and capitalized funds now look to buy into attractively priced good quality and fundamentally sound real estate assets,” says Benedict Lim, managing director, real estate M&A at EY. “Southeast Asia is the next real estate hub for value, Investment activity in ASEAN
Source: Thomson One, Dealogic and Mergermarket
opportunities and core capital given the asset inventory is in different stages of property cycle and landscape maturity.” Technology is another sector that could become the next big hotspot for PE investments, and will be an exciting space with lots of deal activity over the next few years, says Purandar Ra, Singapore head, transaction advisory services at EY. “The impact of technology is felt across industries, which see existing business models being disrupted and re-engineered. There is a lot of capital available to technology companies; and existing brick and mortar businesses are also actively embracing technology for growth,” adds Ra. The EY report says PE funds appear to be principally focused on Singapore when making investments into the technology sector, with 10 of the 14 investments being made into Singapore-based companies. The power of portfolio activism Given the challenges of the PE market and the uptick in deals across the region, portfolio activism will be one of the key strategies for players to win and create long-lasting value. “If the downturn taught the industry anything, it is that lasting value comes from active engagement with portfolio companies,” says Varma. “An activist approach is just one part of a value chain that also includes proactive deal sourcing, effective due diligence and a well-
PE funds appear to be principally focused on Singapore when making investments into the technology sector, with 10 of the 14 investments being made into Singaporebased companies.
planned exit strategy. But it is a critical one, especially in the AsiaPacific region, where so many deals have historically involved minority stakes.” Varma reckons there is no rigid prescription on how to structure a team devoted to portfolio activism. But his firm has found that all effective activist valuecreation programs feature five critical building blocks: Harvest low-hanging fruit quickly, design a robust value-creation plan in Year 1, execute on what matters most, eepen the talent pool and build a top organisation, and overinvest in good deals and turn them great. “None is sufficient on its own,” says Varma. “but we find that the firms that deploy these building blocks early and throughout the asset’s hold period generate more value and are more likely to produce consistent, marketbeating returns.” In demonstrating the interconnectedness of the five value-creation building blocks, PE firms begin by implementing quick fixes that result in higher revenues, lower costs and better margins. Then a value-creation plan is devised as early as year one, which Bain found produced a multiple of 3.6 times invested capital, or twice that of the industry average. This initial cleanup phase and goal-setting then sets a strong momentum for the next years. Plans are only as good as their execution, so the best portfolio activists help the company develop a clear, actionable roadmap, with constant checks that the initial strategy is still appropriate or if there is a need to change course. PE firms must then begin training the current or hiring a new management team to push the portfolio company to success, and avoid mid-ownership CEO ousters. Finally, as PE firms in the region begin to spread out their investments into more deals, there should be a mindset to focus on nurturing deals. SINGAPORE BUSINESS REVIEW | JANUARY 2016 23
ECONOMIC INSIGHT: productivity
Singapore’s productivity plan has five more years to deliver
Singapore’s productivity conundrum
Five years into the ten-year plan by the government to overhaul economic agenda in order to produce a surge in productivity growth, the city-state finds its goal hazier than when it started.
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e are at the half-way mark of the economic restructuring agenda set out by the government in 2010, aiming to raise productivity growth to 2-3% and becoming less dependent on foreign labour to drive sustainable growth. We estimate that the fiscal cost of restructuring-related measures has reached a sizeable 5.6% of GDP so far. Still, the impact has been less desirable than intended, with the reduction in supply of foreign workers causing a sharp tightening in labour markets which has persisted but also, importantly, with labour productivity falling and as a result, increased unit labour costs. The decline in productivity, in our view, is being driven by a number of factors: a higher employment share of lower-productivity sectors, as well as of part-time and older workers who tend to be lower skilled, and an already relatively high cost base that has risen further amid higher global economic uncertainty, leaving little impetus for firms to invest in productivity-enhancing capital, despite various government schemes. The next few years, in our view, will prove to be even more challenging and hence we expect productivity growth to remain lacklustre. Global potential growth is falling, led by emerging markets. With household and corporate debt levels in Singapore relatively high –at 75.3% and 78% of GDP, respectively – financial conditions are likely to tightensharply when the US hiking cycle starts. Finally, Singapore is a rapidly ageing population (even 24 SINGAPORE BUSINESS REVIEW | JANUARY 2016
With household and corporate debt levels in Singapore relatively high –at 75.3% and 78% of GDP, respectively – financial conditions are likely to tightensharply when the US hiking cycle starts.
faster than Japan in the 1990s) at a time when immigration policy is becoming politically sensitive. As a result, we expect Singapore’s potential growth to slow further – we believe it has already fallen to 3.8% since the restructuring and forecast it to fall further to 2.1% in 2016-20 given slow productivity growth and tighter labour supply. Our empirical analysis suggests the single-most important driver of productivity is global growth, and so the risks around our forecasts are tilted to the downside. Low productivity could also complicate the inflation outlook. We believe the rise in unit labour costs will eventually force firms to raise prices, stoking concerns over stagflation, i.e. structurally higher core inflation despite lower economic growth. All this will have important policy implications. Fiscal policy is likely going to be a constant balancing act, with the government likely to stay the course in restructuring, incurring more fiscal costs. The challenge is to juggle this with other social welfare objectives associated with a rapidly ageing population. We expect the government to run smaller fiscal surpluses annually and over the medium term raise more revenues, making higher tax rates for the upper-income income brackets likely. Taking stock of policy initiatives The ongoing drive to raise Singapore’s productivity was conceived and presented by the Economic Strategies
ECONOMIC INSIGHT: productivity Committee (ESC), which the government adopted and unveiled in the 2010 budget. While this is not Singapore’s first attempt, the ESC’s productivity drive has shown greater willingness to take relatively more painful measures, including among others, the tightening of foreign labour supply, to achieve its medium-term objectives. The government is aiming to more than double annual productivity growth to 2-3% per year over this decade from the 1% achieved in previous years to raise incomes and sustain GDP growth of 3-5%. To do this, the ESC recommended four strategic shifts: 1) managing the foreign labour force; 2) improving skills and innovation; 3) ensuring workers keep their skills up-to-date; and 4) encouraging inclusive growth for lower-income workers. Policy tweaks On each of these fronts, significant policy changes and measures have been announced: 1. Tightening of foreign labour supply - Foreign worker levies, dependency ratio ceilings (DRCs) and man-year entitlements (MYEs): Employers are required to pay levies for each foreign worker holding a Work Permit or S Pass while DRCs are quotas specifying the maximum share of a firm’s total workforce that can be made up of foreign workers. MYEs are quotas specific to the construction sector. Policymakers have hiked foreign worker levies and slashed DRCs and MYEs, with further tightening scheduled up to 2018. 2. Investment in skills and innovation - Productivity and innovation credit scheme (PIC): The PIC scheme has been extended to Year of Assessment (YA) 2018 and allows firms to deduct from their taxable income 400% of their expenditures in any of six broad categories of investment: research and development, registration of intellectual property, acquisition of intellectual property, design activities, automation through technology or software and training of employees. The amount that can be claimed is capped at SGD400,000 a year for each category of investment. Firms planning for particularly large investments in one year are also allowed to combine their annual expenditure caps for YA2013-2015 or YA2016-2018. 3. Upgrading skills - SkillsFuture credit: From 2016, citizens aged 25 and above will receive an initial credit of SGD500 for education and training courses supported by government agencies. The credit will be topped up at regular intervals and will not expire. Subsidies for midcareer citizens: From H2 2015, citizens aged 40 and above Labour productivity growth
Source: CEIC, Nomura Global Economics
The government is aiming to more than double annual productivity growth to 2-3% per year over this decade.
will receive subsidies of a minimum of 90% of training costs for courses funded by the Ministry of Education (MOE) and Workforce Development Agency. All citizens will receive multiple subsidies from the MOE for modular courses at all levels. 4. Support for lower-income workers - Wage credit scheme: The government will automatically co-fund 40% of wage increases for Singaporean employees earning up to a gross monthly wage of SGD4,000 from 2013 to 2015. Co-funding will be reduced to 20% in 2016 and 2017. Progressive wage model (PWM): The PWM model essentially functions as a system of minimum wages.4 For example, all general cleaning businesses are now required to ensure that their basic wages for each class of cleaners conform to the wage levels specified by the Commissioner for Labour. Perverse impact so far Despite the relatively sizeable fiscal cost so far, the impact has been less than desirable with the new foreign labour policy causing an immediate tightening of labour markets, which has persisted, and importantly labour productivity has still not picked up five years into the restructuring agenda. The impact of the new foreign labour policy introduced in 2010 was felt quickly. Employment growth, after slowing sharply in 2009, recovered only modestly to about 4% in the succeeding years, well below the pre-crisis average of 6.7%. Unsurprisingly, the slowdown was led by non-resident employment, which saw a sharp fall in its contribution to overall employment growth to just 1.9 percentage points (pp) per year in 2010-14 compared to 3.7pp in 2004-08. The sharp tightening in the supply of foreign workers had the effect of forcing employers to become more dependent on local workers but this is now reaching its limits, as the population is rapidly ageing and the labour force participation rate reached a record high of 67% in 2014, from 66.2% in 2010. Firms are struggling to fill job vacancies. The seasonally adjusted ratio of job vacancies to unemployed persons stood at 1.21 in Q2 2015, which is well above the prerestructuring average of 0.6 (2001-09), suggests a marked increase in labour market rigidity. Similarly our estimates suggest the Beveridge curve has shifted outward in the restructuring era, implying a greater inability to fill certain positions. Indeed, our composite measure of labour market conditions – which aggregates nine indicators – shows that tightness in the labour market over the past five years seems to be greater than for the economy overall, as measured by the output gap. In contrast to the immediate effects on the labour market, labour productivity growth, measured as output per worker, has still not picked up, nearly five years into the restructuring drive. If anything, it has become negative recently. Although export-oriented firms have seen some productivity growth, reflecting the fact that they are already accustomed to the rigours of international competition exerting pressure on them to mechanise and automate, domestic-oriented sectors have struggled. According to Ministry of Trade and Industry (MTI) SINGAPORE BUSINESS REVIEW | JANUARY 2016 25
ECONOMIC INSIGHT: productivity Singapore services and goods exports
Source: CEIC, Nomura Global Economics
estimates, productivity growth in export-oriented sectors rose 2.2% per annum over 2011-14 while domestically oriented sectors saw a 0.1% decline. It seems to us that the failure of the restructuring drive to lift productivity growth has to do with implementation. The take-up of various schemes to help firms improve productivity has not been widespread. In response to a question in parliament in February this year, the Ministry of Finance revealed that the take-up of the Productivity and Innovation Credit scheme (PIC) in YA2014 was still just 46% of active companies (54,000 companies), after numerous rounds of enhancements and improvements following a disappointing take-up of 33% in YA2011. About two-thirds of the PIC, or SGD2.4bn, was spent on automation equipment, but this is equivalent to only 11.5% of machinery and equipment fixed investment in 2014. Explaining the decline in productivity 1. A higher employment share held by lower-productivity sectors - There has been a shift in employment shares towards less productive sectors of the economy. The employment share of Singapore’s manufacturing sector, for example, fell by 2.8pp between 2009 and 2014. The opposite picture is true for the relatively less productive domestic-oriented sectors. These sectors have seen higher employment shares, led by construction, which gained 1.2pp over the same period. Why the shift to less productive sectors? While firms in manufacturing were better able to participate in the productivity drive and reduce hiring of foreign labour, those in the construction sector struggled. Policymakers appear to be sympathetic to the view that it is difficult to entice locals to work in the construction sector – the labour tightening in the sector has been focused on raising the cost of foreign labour rather than using Dependency Ratio Ceiling cuts to force hard reductions. However, such is the sector’s dependence on foreign labour that hiring continued unabated – by 2014, foreign workers outnumbered local workers three-to-one in the sector. At the same time, there has been increased hiring of part-time workers who tend to be lower-skilled and less productive. In its April 2015 Macroeconomic Review, for example, the Monetary Authority of Singapore (MAS) highlighted that the share of part-time workers in the resident workforce rose to 10.5% in 2014 from 6.8% in 2008. 26 SINGAPORE BUSINESS REVIEW | JANUARY 2016
The share of part-time workers in the resident workforce rose to 10.5% in 2014 from 6.8% in 2008.
In the services sector, 44.2% of private sector establishments offered part-time work, compared with 35.8% for the economy overall, and just 24.8% in manufacturing. In particular, accommodation and food services, retail trade and community, social and personal services – sectors which face a higher hurdle to automate – had 56.7%, 55.7%, and 68.2% shares of their private sector establishments’ respectively offering part-time work in 2014. These sectors likely attracted mostly older workers returning to the labour force on a part-time basis, as evident in the rise of the labour force participation rate, helping push the overall rate to record highs. 2. Investment in other areas has fallen - In our view, an already relatively high cost base has risen further amid higher global economic uncertainty, leaving little impetus for firms to invest in productivity-enhancing capital. Real fixed investment growth rates for machinery and equipment, as well as intellectual property products, continued to grind lower, along with intellectual property products. Growth of spending on R&D has also fallen, along with growth in the number of patents owned. While policymakers have introduced a suite of productivity schemes to ease the pains of restructuring, including the Productivity and Investment (PIC) scheme, there are signs that these have been insufficient, especially for SMEs. Complaints that the PIC scheme is too complicated or restrictive are well-voiced – since its introduction in 2011 the scheme has been tweaked every year in response to corporate feedback. The scheme also generally still requires firms to bear some of the cost, especially for meaningful investments. While this reduces the risk of abuse and encourages efficient use of the scheme, it may not be attractive enough if firms fear profit margins have been squeezed to the extent that even subsidised investment outlays are still unaffordable. Even when firms did invest in productivity, it was not
Larger challenges lie ahead
ECONOMIC INSIGHT: productivity clear that they were doing so in an optimal way. Based on our conversations with related productivity-improvement agencies, we understand that in the retail trade, food & beverage and accommodation sectors, firms have a tendency to think of mechanisation and automation in isolation. In other words, some firms were installing new equipment and technology without thinking deeper about how it fits the overall work flow or how the work flow could be optimised to take advantage of the former. Even bigger challenges lie ahead While the first five years (out of the targeted 10) of the restructuring agenda have had limited success, we believe that the next few years will prove even more challenging because of a tougher operating environment – hence we expect productivity growth to remain lacklustre. As we have argued, a key constraint on the restructuring efforts has been tepid external demand. Looking ahead, this is unlikely to improve significantly. The IMF’s assessment is that global potential growth has fallen since 2008. In advanced economies, the IMF expects only a slight improvement in potential growth to an average of 1.6% in 2015-20 from 1.3% in 2008-14, below the 2.25% experienced in 2001-07. In emerging market economies, the IMF expects potential growth to fall to 5.2% in 2015-20 from 6.5% in 2008-14. Compounding this, the IMF estimates that the income elasticity of global trade has been falling, i.e. less exports and imports generated by each unit of global income. Reflecting this, Singapore’s non-oil domestic exports and industrial production (excluding biomedicals) have struggled to improve beyond 2010 levels. More encouragingly, exports of services have fared better post-crisis, driven by modern services such as finance, information and communications. However, given that exports of goods remain about three times larger than those of services, the latter is unlikely to be able to drive overall export growth higher.
Household debt
Source: CEIC, Nomura Global Economics
The 20-64 workingage citizen population was shown to have already peaked in 2011 and by 2020 the absolute size of the working-age population would begin to shrink.
The slide in potential growth has occurred in an environment of ultra-low global interest rates, which may soon start reversing in the US. Our US economists have recently pushed out their most likely window for the first Fed rate hike from December 2015 to March 2016. A rise in US rates would, because of the targeted S$NEER regime, push domestic interest rates higher in Singapore. This in turn would raise the cost of capital, constraining investment spending further. Even the anticipation of a Fed lift-off has seen Singapore’s 3m swap offer rates climb more than 100bp from 0.3% in October 2014 to 1.23% as of end-September 2015. Devil in the demographics In our view, one of the toughest challenges for Singapore is the pace at which its demographics are becoming less favourable. In the 2013 Population White Paper, based on prevailing birth rates and assuming no immigration from 2013, the citizen population was projected to peak in 2025 and then decline. Worse, the 20-64 working-age citizen population was shown to have already peaked in 2011 and by 2020 the absolute size of the working-age population would begin to shrink, bringing the old-age support ratio (i.e. number of citizens aged 20- 64 years for every citizen aged over 65 years) down to 3.6 in 2020 from 5.9 in 2012. This demographic headwind will add to the productivity challenge. The Ministry of Manpower projects growth in the resident workforce to fall from an average of 66,000 workers per year in 2010-14 to 20,000 per year towards 2020. Unless policymakers reverse the tightening on foreign labour, labour supply growth will slow and add further downward pressure on potential growth. In addition, as we mention above, assuming no relaxation in foreign labour policy, a higher share of older workers in the workforce has contributed to the lack of improvement in aggregate productivity growth in the last few years, and that share is likely to rise over the medium term. An ageing population also requires more fiscal resources set aside for healthcare and related spending, leaving less room to expand funding to support the restructuring agenda. Tharman Shanmugaratnam, the deputy prime minister and then-minister of finance, noted in his Budget 2015 speech that government spending on healthcare would rise to over SGD13bn in 2020 from some SGD9bn in 2015. By Euben Paracuelles, et al., Nomura Global Markets Research SINGAPORE BUSINESS REVIEW | JANUARY 2016 27
Analysis: singapore banks says Segupta. “However, new apps and technology offerings from FinTechs are beginning to break the pull banks exercise on their customers, one slice at a time.” Offering lower prices and superior customer experience through their sleek apps and technology processes, digital providers are beginning to woo customers in Asia en masse. McKinsey’s latest Personal Financial Services survey found that more than 50% of customers said they would switch banks if a new fully digital provider made an attractive offer. They would also move between 30-50% of their business away from banks.
Tech firms threaten conventional banks
Asian banks play naughty or nice as FinTech firms rise
The boom of finance technology (FinTech) firms has forced Asian banks to either collaborate or compete with their own innovations.
W
hen FinTech startups began globally gathering blazing-hot momentum, it did not take long for Asian banks to feel the heat. FinTech firms promised cheaper, more convenient transactions, especially in the payments space, and packaged these in apps and other digital platforms that resonated well with the modern internet-dependent, smart phone-tapping customer. With billions of dollars of revenues on the line, Asian banks are either working with FinTech startups or fostering in-house innovations to retain customers whose feet are beginning to turn towards the exit door. Bank business models threatened technology firms present a major threat to banks’ business models, says Joydeep
28 SINGAPORE BUSINESS REVIEW | JANUARY 2016
More than 50% of customers said they would switch banks if a new fully digital provider made an attractive offer.
Sengupta, director at McKinsey & Company. McKinsey estimates that across five key retail banking businesses – consumer finance, mortgages, SME lending, payments and wealth management – up to 40% of revenues and up to 60% of profit are at risk of loss by 2025. This represents roughly 6% of return of equity (ROE), or 50% of current ROE. Segupta says the traditional banking model acquires customers through a low cost method such as opening a savings or checking account. The bank then builds value in the relationship as customers begin to use their bank for more complex transactions, which tend to have higher margins. “The customer relationship holds the web of activities together. It was difficult for customers to switch banks when dissatisfied,”
FinTech boom Analysts say FinTech has filled the space left vacant as banks were forced to focus more on compliance instead of innovation. Consumers have also begun to turn to FinTech for what experts believe are cheaper and more intuitive alternatives to traditional banking products. “On the one hand, public trust in financial institutions has sharply diminished due to the economic impact of the financial crisis on businesses and households. On the other hand, banks were faced with a more onerous regulatory framework which diverted their resources towards compliance,” says Gerben H. Visser, co-founder of The Singapore FinTech Consortium. “Instead of delivering innovative and customercentric solutions, technology companies have leveraged on the opportunity arising from public demand and the incapacity of banks to adapt quickly,” he adds. Faced with possible customer and revenue losses, banks would not be faulted for viewing FinTech and other similar firms in an adversarial light. But Visser says their emergence should be embraced by banks as a sign to shake off their complacency. Visser says that the financial sector is no stranger to
Analysis: singapore banks technological disruptions to bring new products to market, citing the introduction of the automated teller machine in the 1960s. However, the rate of technological change within the financial sector has dramatically increased, and the biggest challenge for banks today is to match this sometimes overwhelming speed of change. “The problem is banks are slow to realise the value in developing such capabilities before they become focal points of externally led disruption. Bank who fail to catch up with digital disruption will thus lose out,” says Tom Mouhsian, head of customer & growth practice for the ASEAN region at KPMG. Mouhsian believes that banks have “huge advantages” over FinTech, such as their established market and capital resources, and it would be prudent for them to mobilise these in adopting new digital solutions, if they themselves cannot lead the innovation. “This can mean learning to design customer-friendly functionality and user experience, building real-time and virtual customer service capabilities, personalising marketing campaigns, customising product features and pricing, adopting new technologies and product ideas and absorbing vast amounts of data to produce informed actions,” he adds.
Vince Tallent
Aung Kyaw Moe
Gerben Visser
Joydeep Sengupta
Banks step up Already, banks are stepping up their digital and technology game, pushing out cutting-edge products as well as making innovation a core Digital consumers represent a sizable population in most markets
Source: Mckinsey Asia personal financial services survey,2014
part of their corporate culture. Last year, Standard Chartered Bank launched DASH, an application which reinvents the way person-to-person payments are made through a unique technology that mimics physical cash transfer. “Customers want a world of perfect payments – one that is faster, more secure and more convenient,” says Sandhya Devanathan, head of retail products at Standard Chartered Bank Singapore. “To meet this customer demand, Standard Chartered developed DASH together with Singtel. It is the only application in the market which integrates the application, use and management of simple retail banking and payment products into a single accessible mobile application,” says Devanathan. Customer security Compared to FinTech alternatives, Devanathan says customers have peace of mind when they undertake transactions using his bank’s digital platforms, which has helped DASH gain market traction. Meanwhile, in September, Maybank launched its first ever Hackathon at its head office in Malaysia, to develop an innovative app for wearable technology, says Choong Wai Hong, head of community financial services at Maybank Singapore “For us, the ultimate aim is to ensure that technological innovation serves our customers. It is also important to recognise that we serve a broad range of customers and we must ensure that while we continue to push new frontiers in our banking services, we must not alienate customers who prefer traditional banking methods,” says Choong. Choong admits that FinTech companies can pose a threat to banks in the form of lost future revenue. “Startups seeking alternative sources of funding from crowdfunding platforms such as MoolahSense, CapitalMatch and FundedHere may not have much of an impact on banks.
However, banks’ revenue would be threatened should such companies continue to resort to these nonfinancial institution alternatives even after their credit profiles have improved,” says Choong. “Additionally, those providing such financing through these platforms may also be diverting part of their portfolio from traditional investments, hence impacting revenue,” he adds. Similarly, Citibank is taking the formidable FinTech wave in its stride and is pouncing on the opportunities that these changes bring to the bank. “The key to staying ahead of the game is ongoing technological innovation and continuous adaptation. We see technology disruptions as opportunities to gain market share from traditional players, if we react nimbly to capitalise on new business opportunities in the changing landscape,” says Melvyn Low, head of ASEAN and Singapore for treasury and trade solutions at Citibank. Citibank recently partnered with Apple Watch in order to serve customers in a faster, easier way. Its Citi Mobile Lite App on the Apple Watch provides their customers access to transactions at a glance. “We believe that banking should be simple and convenient, and we are constantly exploring advances in technology to help us deliver a better experience for our customers,” says Low. Even FinTech companies concede that while banks will feel the pinch, they will not become obsolete, especially those that are moving aggressively to stay relevant in the digital age. “Banks and financial institutions will adapt and evolve,” says Aung Kyaw Moe, founder and CEO of southeast Asian payments company, 2C2P, which provides banks with technology and innovation expertise. “If one looks at the operations of a bank, there is not much that is proprietary. Technology, software and back-end processes are typically provided by an external vendor.” SINGAPORE BUSINESS REVIEW | JANUARY 2016 29
COVER STORY
Find out which way to go in 2016
16 smart investment choices in 2016 to come out ahead of the monkey pack Outwit all the other investor chimps and outmaneuver even when the markets go bananas.
2
016 is the year of the monkey, and investors would do well to channel the smarts of this zodiac animal as they navigate an investment jungle filled with irresistible European equities and risky tech plays. One caveat is that no one has a crystal ball and if we at Singapore Business Review knew which would be the best investment picks, we would be retired by now. So should you harvest the low-hanging fruit or risk a limb for tastier investment deals? To help you decide, our troop of analysts and traders have gathered and peeled this year’s best investment choices for you. Read on to see which ones you would like to chew on in 2016. 1. European Equities Equity markets in Europe flourished in 2015 on the back of accommodative monetary polices and increasing corporate earnings momentum, and this trend should continue in 2016, says Zal Devitre, head of investments at Citibank Singapore. “The European Central Bank has signalled its intention to continue and perhaps augment its monetary stance. We therefore continue to favour equities in Europe ex-United Kingdom,” says Devitre. He expects stronger domestic demand in 2016 due to lower oil prices and a weaker Euro, which will then help propel European economies and corporate earnings 30 SINGAPORE BUSINESS REVIEW | JANUARY 2016
across the region. He cites consensus estimates that point to double-digit earnings per share growth for European companies from 2015 to 17. Buying European equities is a bit of a consensus call, says John Lilley, head of investment strategy at Taurus Family Office, but it is made especially attractive by the impact of the lower currency, the sharp decline in oil prices, and the quantitative easing by the European Central bank. “European equities should have a good 2016, in particular Eurozone equities,” says Lilley. “There are some signs of a recovery in the European economies, and we expect the economic surprises in Europe to be to the upside, which should also support the equity markets.” 2. European Banks Given Europe’s rosy outlook in 2016, Devitre singles out European banks as a sector that investors should consider heavily. Not only are they trading at attractive levels, but they are also properly geared to benefit from the region’s ongoing economic recovery. 3. Russian equity index For investors who can be nimble and have an appetite for risk, buying Russian equity index can lead to big payoffs. While this investment option may appear appalling at
“There are some signs of a recovery in the European economies, and we expect the economic surprises in Europe to be to the upside.”
COVER STORY first, there are signs of market improvement and there are viable plays to be made. Russia is an ‘unloved,’ forgotten market facing high interest rates, a recession, a dependency on oil, and European Union and United States sanctions. However, the central bank has started to ease policy, the debt situation is a lot better than in Brazil, and oil prices could be at the lower end of the range,” says Lilley. “Tactical plays when the Russian market bounces off support may do well, as was the case in 2015. One has to be very nimble though, because it is a very volatile market,” he adds. 4. US Equities – Financials and Technology While European equity markets are set to soar, their counterparts across the Atlantic should show strengths as well, especially in the financial and technology sectors. “US equity markets have performed well over the past six years,” says Devitre. “Investors should therefore be selective in identifying opportunities. Banks and Information Technology sectors stand out.” Devitre points out that notwithstanding prospects of slow global growth, the United States economy continues to display healthy momentum as shown in solid payroll gains, construction activity, and consumer spending.He expects the Federal Reserve Bank will look to begin raising interest rates in 2016, a move that will benefit banks as they earn larger spreads on deposits. He says investors should also warm up to US banks since these are trading at reasonable valuations. The technology sector also offers great investment potential, according to Devitre, since it is expected to perform strongly on the back of robust earnings, outstanding global brands and consistent innovation. 5. Tech companies catering to F&B Even among the technology companies, there are budding investment darlings, and 2016 could be the turn of firms servicing the food and beverages (F&B) sector, says Sharon Chong, CEO at Golden Equator Consulting. “Logistics, manpower and infrastructure management are constant pain points for F&B merchants, and as they look for solutions to bridge the gaps. We are going to see technology playing a big part in alleviating these issues,” says Chong. Taking Singapore as an example, she says the comGross domestic product for Euro area (19 countries)
Source: Statistical office of the European communities
Cedric Tinguely
John Lilley
Kieran Calder
Rodney Comegys
petitive climate and relatively small physical radius of customers in the country pushes F&B merchants to begin expanding beyond their usual brick and mortar services. Many are exploring ways to increase their sales via efficient delivery and fulfillment options. “This will spur greater innovation amongst tech players catering to the F&B industry, including manufacturing and distribution within Singapore and other countries in the region,” says Chong. Investors should also keep a close eye on online F&B marketplaces, which Chong says is “another potential superstar.”With high demand growth in the sector and influx of technology,she expects smaller players will have the chance to be aggregated and reach a larger shared audience base, and they will be powered by a strong logistics and fulfillment infrastructure. “In the coming years, we foresee it will be worth investing in tech companies who are building more sophisticated platforms which provide end-to-end solutions for smaller players to collectively leverage on,” says Chong. 6. Global revolutionary companies Ambition is not just for dreamers, but for investors as well, with pioneering global companies becoming one of the must-watch investment options in 2016. “Investing in global revolutionary companies, namely, those operating in Big Data space, companies concentrating on improving health and wellness of individuals, as well as companies facilitating a more integrated global travel system, will have high potential upsides, especially if you are able to spot a unicorn before it becomes one,” says Shirley Crystal Chua, CEO at Golden Equator Capital. 7. Asian tech Betting big on Asian technology companies should be a winning move for investors as the region, with the fast-growing group of countries known as Association of Southeast Asian Nations (ASEAN) dictating the pace. “Although overall internet penetration in the ASEAN region is currently relatively low, the increasing infrastructure investments and growing middle class will contribute to a significant rise in internet users and tech adoption,” says Chua. “Specifically, investors are leaning towards financial technology (FinTech) as well as consumer and social technology. The current rate of innovation and revolution of FinTech will almost certainly change the consumer’s day-to-day transactional behaviours and disrupt how financial institutions have been operating over the last few decades,” she adds. 8. Myanmar Among ASEAN nations, Myanmar is rising as an investment hotspot with the country’s improving business operating environment and economic activity. “With the 2015 elections, Myanmar’s leadership is strengthening, allowing for stronger assimilation into ASEAN. This encourages the influx of foreign companies to help build the country with various resources and expertise to promote accelerated growth. We also expect SINGAPORE BUSINESS REVIEW | JANUARY 2016 31
COVER STORY to see more a liberated and open securities exchange, achieving higher standards of capital market activities and flow of resources,” says Chua. 9. Vietnamese equities Another standout investment destination in ASEAN will be Vietnam. Vietnamese equities, in particular, have been performing quite well for some time now and the country seems bent on picking up the pace of economic growth. “We have been for a while, and remain very positive about Vietnamese equities for 2016,” says Cedric Tinguely, chief trader at Bordier & Cie (Singapore). “Vietnam’s gross domestic product is growing above 6% and is accelerating. Inflation, which has been a huge challenge in the past, seems to be completely under control. Demography is another big tailwind to the economy,” says Tinguely. “And last but not least, the decisions taken by the government and the central bank – such as restructuring and privatising of state-owned enterprises (SOE), reform of the financial industry and change in the foreign ownership structure – all go in the right direction,” he adds. Reforms are expected to come into force after the February 2016 elections, and are seen to be very beneficial to galvanising the economy. On top of Vietnam’s bright macroeconomic picture, investors should also be keen at the “pretty low” multiples in which Vietnamese corporates are still trading, and this is one of the big reasons that makes entering the market so attractive. Tinguely reckons more cautious investors may be worried about capital flow, especially outflows from international investors, given Vietnam’s status as an emerging market, but this is only a minor cause for concern. “This phenomenon is, in our view, not a worry for Vietnam because the market is known to be very illiquid. Therefore many big institutions do not even consider allocating to Vietnam because of this liquidity issue, which means that Vietnam should not see any big capital outflow that might happen in other emerging markets,” says Tinguely. 10. Indian equities For those looking for medium to long term plays in 2016, buying Indian equities holds particular promise. “We believe that the India story is a medium to long term one, and the stock markets have partially reflected this,” says Lilley. He reckons a combination of lower oil prices and structural reform will keep the Indian markets well supported in the coming years. Despite the prevalent disdain for emerging markets, investors will still be persuaded to dip into Indian equities, among other emerging market investments, as they smartly differentiate between the stable and the vulnerable economies. “We believe India will continue to be at the top of their lists for investment destinations,” says Lilley. “Indian stock markets have risen in response to hopes for the new government. Fundamentals are still decidedly positive, he adds.” 32 SINGAPORE BUSINESS REVIEW | JANUARY 2016
Sharon Chong
Shirley Crystal Chua
Zal Devitre
11. China equities Like India, China has been battered with negative investor sentiment, but Lilley says buying China equities is a solid strategy in 2016.Acknowledging that the Chinese economy faces many challenges ahead, Lilley points to stabilising economic growth in the fourth quarter and a shift towards a services-oriented economy, away from a manufacturing and exporting focus. “We think Chinese equities will perform in 2016,” says Lilley.“Structural reforms aimed at boosting consumer demand in China seem to be gaining traction.” Other positive factors for China include ongoing financial liberalisation and moving plans to implement the ShenzhenHong Kong Stock Connect scheme, which will improve access for investors, says Kieran Calder, head of equities, Asia at Coutts. “And we think it’s likely that the yuan will be added to the International Monetary Fund’s global reserve currency basket in 2016, which should boost the global standing of Chinese assets. Investors can access Chinese equities via China-listed A-shares or Hong Kong-listed H-shares,” says Calder. “Long-term investors may gain a margin of comfort by buying into the H-share market. The China journey won’t be smooth, but we think lowered expectations will eventually get beaten and H-shares won’t stay at this current level for long,” he adds. 12. Japan In Asia, Japan has shone brightly after corporate reforms and record-high earnings led to an outperformance in 2015. “We expect this can continue next year,” says Calder.Despite outperforming in 2015, Japanese equities remain attractive. They are not expensive relative to global peers, profits are growing fast, and we see further upside in the year ahead.” Calder notes that managements at a majority of Japanese companies have now adopted targets for return on
Invest in Asian equities
15. Active management of portfolios Finally, investing in active management of portfolios may be the most prudent action in 2016, especially if the year throws a lot of curve balls. “2015 saw rising volatility and in 2016 it will be more of the same. There are going to be bouts of significant volatility every few months, so tactical ideas may work well again,” says Lilley. He recalls the events of 2015 wherein the first half of the year looked good, before turning negative after May for many markets, leading to a sour September when negative sentiment became overwhelming, then followed by nice recovery in markets from mid-September when investors realized that the underlying fundamentals had not deteriorated as much as the markets were signalling. “We suspect that as was the case in 2015, the central banks will be called in again to calm the markets at some point in 2016,” says Lilley. 16. ETFs With increased volatility comes increased risk, so investors looking to ease their worries should consider splashing out on some exchange traded funds (ETFs) in their portfolios. ETFs provide international exposure to an investor’s portfolio and can reduce the concentration risk or home country bias, says Rodney Comegys, principal, head of investments at Vanguard Asia-Pacific. “These listed funds are low-cost, and with a few trades can add significant diversification. Ultimately, the optimal mix of local and international investments will vary from investor to investor, but the outcome of a focus on diversification can be a portfolio that is better prepared to absorb the uncertainty that markets face today,” he adds.
Invest smartly in the year of the monkey
equity, leading to higher-quality earnings. In fact, foreigners were mainly net sellers of Japanese equities in 2015, replaced by new and large domestic buyers led by the massive ¥141 trillion ($1.2 trillion) Government Pension Investment Fund. A number of other savings and pension funds may follow suit upon seeing the attractions of Japanese equities, including Japan Post companies. “The top-down outlook for the Japanese economy looks favourable too,” reckons Calder.“The Bank of Japan stands by to provide further stimulus if required, and there is also the potential for fiscal stimulus, either through a delay in a planned increase in sales tax in April 2017, or bringing forward infrastructure projects that are required anyway for the 2020 Tokyo Olympics.” 13. Singapore real estate In Singapore, investment plays in the real estate market may arise in the latter half of 2016. “We remain bearish for at least the first half of 2016,however it is possible that a weak Singapore Dollar, and attractive prices will bring stability at a new(lower) level,” says Lilley.“This ‘capitulation’ by real estate holders has not happened yet, but once it does it could bring significant opportunities at attractive levels.” 14. Brazilian equities and fixed income Strategic investors keen on plays in South America should look towards Brazilian equities and fixed income. The country has been battered with huge headwinds such as high interest rates, rising inflation, economic recession and political maelstroms – all of which weighed heavily in 2014 and 2015. But for Lilley, “it is possible that we may be reaching a point of ‘maximum negativity,’ where all the bad news has been fully priced in. It is not for the faint of heart, however later in 2016, Brazil may become a very interesting contrarian call.”
China GDP annual growth rate
Source: Taurus Family Office
Interest rates, government securities, treasury bills for Brazil
Source: Taurus Family Office
SINGAPORE BUSINESS REVIEW | JANUARY 2016 33
SINGAPORE’S 50 LARGEST real estate agencies
Do-it-yourself home purchases
Property agents get shoved as clients turn to self-service
Consumers are requiring the services of real estate agents much less.
I
f you ask Singaporean real estate agents (RES) what their biggest frustration is these days, chances are you will get the response: “Everyone thinks they can do our jobs.” Property owners are beginning to rely less on RES to buy and sell to cut down on fees, and the wealth of available information online is further emboldening their self-service decision.This trend has hurt RES demand and income levels, but industry insiders reckon that property owners will find it well worth their money to hire an RES once the market rebounds. “With consumers being more knowledgeable with Internet accessibility and information that is readily available on the internet or property portals, they will be requiring the services of estate agents much less,” says Jeff Foo, president of Institute of Estate 34 SINGAPORE BUSINESS REVIEW | JANUARY 2016
More HDB flat owners who have to sell their flats are adopting the style of selling the unit by themselves, to save on agency costs.
Agents, Singapore. “More HDB flat owners who have to sell their flats are adopting the style of selling the unit by themselves, to save on agency costs. They hope to save on agency fees because times for HDB resale flats are weak, and the prices have cooled off,” says Ong Kah Seng, Director of R’ST Research. But Ong reckons that not all those that pursue the selfservice approach meet success. After a couple of months, where the owners themselves are unsuccessful in getting home buyers, many sellers engage agents to help them. Toughing it out Aside from the loss of revenues from clients that are attempting to close deals by themselves, property agents also face a slower market filled with more choosy buyers. But
Ong is bullish that the property agency career will remain appealing. Still, hanging on is easier said than done for RES, given its variable compensation – top agents can receive $1 million or more commission annually but low performers earn only a small fraction of that -- and have steep professional costs. Foo says the costs for property agents are relatively high, factoring in the annual renewal fees, professional indemnity insurance, portal subscription, advertisements, and continuous professional development courses. This means that only the RES that keep their eyes on the prize and tough it out will get to enjoy the good times. “With the information technology age, many predict that we will be redundant in the near future. I just don’t see it happening. You don’t buy a property just by looking at pictures and videos online. There are a lot more emotions and considerations in such a major decision,” says Eric Tng, division director at ERA Realty Network. “RES, as a true professional, should be able to advise on real estate investments, calculate and help maximise investment returns and finally, manage clients’ real estate portfolios. Also, they should be familiar with overseas property markets in this age of globalisation. This career is only suitable for people with an entrepreneurial mindset, motivated and able to work independently.” he adds. Who made it to the SBR’s list? In its third year of ranking real estate agencies based on total number of real estate agencies, SBR expanded the list to the top 50. ERA Realty Network maintained its top position with a headcount of 6,036. The list welcomes four new entries in the top 30 this year, namely Shenton Realty Homes, Square Yards Singapore, Miracles Realty Group, and Knight Frank Asset Management.
SINGAPORE’S 50 LARGEST real estate agencies No of registered Salespersons 2015 2014
Key Executive Officer
6,036
5,911
LIM TONG WENG (EUGENE)
5,826
5,687
LIM YONG HOCK
3
3,228
3,495
TIANG AI SEEK (PEGGY NGIAM)
ORANGETEE.COM
4
2,038
2,172
TAN WEE SIN MICHAEL
CUSHMAN & WAKEFIELD*
5
1,891
2,033
TOBY DODD
DENNIS WEE REALTY
6
1,379
1,479
WONG CHEONG HONG
7
HSR INTERNATIONAL REALTORS
7
972
1,324
HONG ENG LEONG (JEFFREY HONG)
8
SAVILLS RESIDENTIAL
9
794
748
ANG YING HUI PHYLICIA (PHYLICIA ANG)
2015 rankings
Real Estate Agency
2014 rankings
1
ERA REALTY NETWORK
1
2
PROPNEX REALTY
2
3
HUTTONS ASIA
4 5 6
9
KF PROPERTY NETWORK
8
778
911
TAN TEE KHOON (HARRY)
10
SLP SCOTIA
10
597
679
LIM GEOK CHWEE (DEREK LIM)
11
GLOBAL PROPERTY STRATEGIC ALLIANCE
11
479
670
YONG DENNIS
12
C&H PROPERTIES
13
468
525
Lu Nguan Soo (Albert
13
CBRE REALTY ASSOCIATES
12
460
636
LEONG BOON HOE
14
SLP REALTY
14
441
358
KOE JIAN ENG (TONY KOE)
15
ECG PROPERTY
15
225
265
CHENG LYE MENG ERIC
16
MORE PROPERTY
16
182
235
TAN WEI SENG (LESLIE TAN)
17
MINDLINK GROUPS
17
174
183
CHOW YI TONG (MERSON)
18
REA REALTY NETWORK
21
116
130
WOON CHUEN THIAM (WINSTON C.T. WOON)
19
VESTOR REALTY
19
103
133
ANG YEN NEY
20
REAL CENTRE PROPERTIES
26
99
77
CHAN WEI TING EMMA
21
JONES LANG LASALLE PROPERTY CONSULTANTS
23
95
88
FOSSICK CHRISTOPHER JOHN
22
SHENTON REALTY HOMES
-
93
-
TONG YICK HOONG EDWIN (EDWIN TONG Y H)
23
CBRE
25
82
79
PAULINE GOH
24
COLLIERS INTERNATIONAL (SINGAPORE)
22
77
103
YEO KUAN HWEE CALVIN
25
SQUARE YARDS SINGAPORE
-
73
-
CALVIN CHAO
26
HOUSE & HOME PROPERTY
24
70
82
ER CHENG HIANG (ALVIN)
27
MIRACLES REALTY GROUP
-
68
-
PHER KWONG SIANG (JEREMY)
28
REALSTAR PREMIER GROUP
-
67
-
WONG TECK KEONG (WILLIAM)
29
KNIGHT FRANK ASSET MANAGEMENT
-
62
-
WONG LOO KUAN LYDIA
29
KNIGHT FRANK
29
62
76
YEO ENG CHING DANNY
29
SLP INTERNATIONAL PROPERTY CONSULTANTS
30
62
69
SIM KAIN KAIN
32
SAVILLS (SINGAPORE)
-
61
-
MING KOK WAH (STEVEN MING)
33
C&H INTERNATIONAL
-
60
-
SNG AH HENG
34
SINGAPORE ESTATE AGENCY
26
57
77
SEE LYE KEONG (SHI LAIQIANG) (CALVIN)
35
REAL CENTRE INTERNATIONAL
-
55
-
LIM TZEN NAM/LIM TECK NAM (KEN LIM)
36
CI AGENCY
-
51
-
HO ENG JOO
37
CHESTERTON SINGAPORE
-
49
-
HAN YONG LEE (DONALD)
38
SPACEZ REAL ESTATE
-
48
-
LONG HIAN BOO (MICHAEL)
39
LHG PROPERTIES
-
47
-
HO CHAI HWA (LEWIS
39
VESTASIA CORPORATE RESIDENTIAL SERVICES
-
47
-
KOK KITT SOON JANSEN
41
KPN PROPERTIES
-
43
-
KOH KIAN SOON (DANIEL)
41
MCDOWELL REALTY NETWORK
-
43
-
WANG SOON YEE LARRY
41
SE REALTY
-
43
-
TAN YU MEI ANGELYN
44
WRITE REALTY
-
42
-
CHEW BEE KUAN (ANGIE)
45
CITYHOMES
-
41
-
MOHD AMIN BIN MOHD ZAIN
46
ONEHOME PROPERTY
-
40
-
ZHANG QINGLIN (ARTHUR ZHANG)
47
WILD WILD WEST PROPERTIES
-
40
-
YAP ENG CHENG (ROBERT)
48
TRILLION PROPERTY
-
39
-
TAN KOK BEN (ANDY TAN)
48
RIPTON REALTY
-
39
-
CHUA YONG KANG
50
CCN REALTY
-
38
-
SETO SIU MANG (IDA)
Data obtained from Council of Estate of Agencies (CEA). (Updated on July 13, 2015) *Cushman & Wakefield and DTZ have successfully completed their merger on September 1, 2015. The new company will now operate under the Cushman & Wakefield brand.
SINGAPORE BUSINESS REVIEW | JANUARY 2016 35
legal briefing
Singapore’s patent rules get tweaked Filing patent applications in Singapore will soon take longer and have higher costs.
T
he cost of getting patents in Singapore is bound to increase in 2017, as the city-state’s patent office moves to amend anew its patent regime since last revising it in 2014. Tan Tee Jim, S.C., senior partner at Lee & Lee says the major changes involve the abolition of the foreign route for search and examination of patent applications. “Currently, under the foreign route, a patent applicant in Singapore can rely on a final positive search and examination report of a corresponding application from Australia, Canada, European Patent Office, Japan, New Zealand, Republic of Korea, the United Kingdom and the United States of America,” says Tan. Alternatively, the applicant can also depend on a positive international preliminary report on the patentability, for international corresponding applications under the Patent Cooperation Treaty. Tan says one of the difficulties with this route is that a thorough examination of the patent application is conducted under the law of the jurisdiction where the corresponding application was examined. The law of the foreign jurisdictions may differ from Singapore law. “Consequently, a patent that has proceeded to grant under the foreign route may potentially be invalid under Singapore law when challenged. The proposed changes aim to resolve this
“A new supplementary examination fee of S$40 will apply to requests for supplementary examination filed on or after January 1, 2017.” difficulty,” he says. With the forthcoming changes, the applicant can soon rely only on the local route, where the applicant files a request for local search and examination without any reference to any foreign application, or the mixed route, where the applicant files a request for local examination based on either the final search result of a corresponding application or an International Search Report. What will the changes bring? “As a consequence, there would be an increase in search and examination fees (and patent filing costs) for the applicant, as well as a potentially longer period of time required for patents to proceed to grant,” Tan says. The Intellectual Property Office of Singapore (IPOS) says a new supplementary examination fee of S$40 will apply to requests for supplementary examination filed on or after January 1, 2017 in respect of ongoing applications filed prior 36 SINGAPORE BUSINESS REVIEW | JANUARY 2016
Justin Davidson
Tan Tee Jim
Yew Woon Chooi
to January 1, 2017. The fee is intended to gradually increase after it comes into force. Justin Davidson, partner at Norton Rose Fulbright, says the planned patent regime changes will increase both substantive examination work and fees for Singapore’s patent office that was otherwise being sidestepped and lacking a say on its own granted patents’ quality and direction. Davidson says with the changes in place, applicants will no longer be able to avoid local substantive examination. “For applicants who were previously eligible to opt for the free examination under the foreign route, this will now mean incurring additional costs and time to get a patent granted in Singapore,” he says. “The amendments will increase the cost of obtaining patents in Singapore. In order to avoid the increased costs, applicants are advised to file their patent applications in Singapore prior to January 1, 2017, to take advantage of the foreign route,” says Yew Woon Chooi, partner, Intellectual Property and Technology at Rodyk & Davidson says. How has Singapore’s patent regime evolved over the years? The change in the country’s patent regime comes three years after it implemented a round of amendments to deal with intellectual property in the city-state. Significant changes to the Patents Act introduced on February 14, 2014 included a change from a “self assessment” system to a “positive grant” system, where only patents with a favourable examination report may proceed to grant; introduction of a supplementary examination process where an applicant seeks to rely on the final search and examination results of a corresponding application, a related national phase application or Patent Cooperation Treaty application; change of time lines for complying with the various examination options; and removal of post-grant search and examination provisions. The government of Singapore says it recognises that intellectual property has and will continue to play a key role in the development of the nation’s economy. The republic’s three key policy anchors include accessibility, which aims to provide access to a robust intellectual system to assist Singapore and Singaporebased businesses to scale and thrive in the rule-based trading system of the world. IPOS also works towards interoperability – building linkages with strategic partners to allow for mutual access to markets and intellectual property regimes so as to facilitate globalisation. Lastly, the office strives to maintain a quality intellectual property system with a credible service industry and professionals to serve Singapore and beyond.
co-published Corporate profile
3E Accounting banks on efficiency, economy, and effectiveness on the road to success As one of Singapore’s top 30 accounting firms, 3E Accounting strives to stand out.
I
t has been one year since 3E Accounting, a leading company in Singapore, expanded to Malaysia - and during this short span of time, this steadily growing firm is already being recognized for their quality services to their clients. To call 3E Accounting a mere accounting firm would be an understatement – they are the first accounting firm among the top 30 companies in Singapore that does not focus purely on typical accounting, tax and auditing work. “We look beyond what an accountant should do and provide clients with one-stop-solution services to help them grow their business. From company incorporation matters to nominee director services, business license application, work pass application and smaller issues such as ordering of company stamp, company seal are part of our one-stop-solution services in addition to accounting and tax services,” says Lawrence Chai, managing director at 3E Accounting. Growth by expansion By providing a single point of contact with whom to coordinate on various issues, they provide an efficient, hassle-free experience for their clients. “3E Accounting Malaysia is extremely honoured to be among the first few batches of specialists to be recognized as a Goods and Services Tax (GST) Agent licensed by the Ministry of Finance, Malaysia on 28 April 2015. The license enables 3E Accounting to further enhance its services and provide a one-stop-solution centre to all businesses,” says Chai of the company’s recent accreditation. As 3E Accounting is targeting growth in the form of expansion in all the ASEAN countries, some of the challenges the company has encountered includes creating a suitable system and structure for the new areas, as well as the search for compatible service partners per country. However, finding resolutions to these issues is a priority for further expansion. “So far we have managed to shortlist a partner firm in Indonesia. We are actively marketing our network and are on the lookout for good firms from the ASEAN countries to start our negotiation with them for them to join our network as the
one-stop-solution centre service provider in the region. We are planning to look into expanding into Hong Kong and China after we have established all our ASEAN members,” says Chai of their plans to expand into all ASEAN countries by 2017, if not sooner. “Our next target will be to venture into the wider Asia and global market.” Finding the best solutions One of the key factors in this firm’s success is its low employee turnover rate. The company, which started out as a husbandand-wife business duo, has grown in part because of the team behind the firm “We value our staff and treat them as our valuable asset and we are confident that it will benefit our clients in the long run.[My wife and I] are always open to discussion on all matters until we mutually come to a conclusion with the best solution [with our staff],” says Chai. “To us, 3E Accounting is not just for the interest of me and my wife but for the whole 3E team at large,” Chai adds. At the same time, 3E Accounting is on the constant lookout for new talent to join the
firm in order to expand their current line of services further. “It is our mission to offer the Three Es: efficiency, effectiveness and economy, all part of our One-Stop Solution services for our clients,” he adds. “In Singapore, the choice is clear: for the best in accounting, taxation, legal, marketing and clerical support, clients need 3E Accounting, the leader in cost-effective professional solutions.” Constantly improving Moving forward, as 3E Accounting gains a foothold on the ASEAN and the rest of the global market, the firm is set on this direction: to become a top service provider in the field by focusing on efficient, highvalue services to exceed client expectations. “3E Accounting is consistently striving to improve in everything that we do. We are always on the ball to provide the best value added services to our clients including to assist them to grow even in the international platform,” says Chai. “We will continue to strive to become the leading corporate services provider both in the region as well as globally.”
“3E Accounting is consistently striving to improve in everything that we do. We are always on the ball to provide the best value added services to our clients.”
SINGAPORE BUSINESS REVIEW | JANUARY 2016 37
singapore’s 30 Largest Accounting Firms
More specific hiring requirements
Accountant demand to keep beating supply beyond 2016
Recent accountancy graduates have shown a preference for large banks.
2
015 has been a good year for professionals in Singapore – the hiring mood in Singapore has been very busy in the past year, particularly for accountants. The specialised technical skills and knowledge that accounting professionals possess are essential to businesses and organisations in all industries, and the demand for accountants has remained strong across the board in the past year. However, recent accountancy graduates have shown a preference for financial institutions such as large banks, which offer a higher starting salary compared to other organisations. “Previously, fresh accountancy graduates, especially those who graduated with first-class honours, would start their careers as auditors in the public accounting firms (including big international 38 SINGAPORE BUSINESS REVIEW | JANUARY 2016
As long as the Singapore economy continues to be robust and vibrant, the demand for accountants will likely continue to outstrip supply in 2016 and beyond.
accounting firms) before venturing into the commercial world after having accumulated sufficient working experience in the auditing field,” says Paul Tan Lye Heng, managing director of CA Trust PAC and member of the Association of Chartered Certified Accountants (ACCA). This new trend has public accounting firms struggling to recruit top talent, the professionals who make up the backbone of the accountancy profession. For professionals, experience in the financial and banking sectors is especially beneficial, as regulations and measures are steadily being tightened in those industries. “In banking and financial services, technical accountants or accountants with niche expertise are particularly sought after for their industry specific knowledge, expertise around accounting
requirements, and certain client exposure,” says Lynne Roeder, managing director of Hays Singapore. At the same time, companies are also more specific with their hiring requirements. “Back in 2007-2010, the accountant’s interview process till the offer stage usually takes less than 2-3 weeks. However, this has changed to up to 2-3 months as they are looking for the perfect fit,” says Yanni Ma’at, Morgan McKinley Commerce & Industry Division. Employers are taking as much time as necessary to hire the most suitable candidates for the job scope. As 2016 approaches, the trends seem to predict a consistently strong demand for accounting professionals. “As long as the Singapore economy continues to be robust and vibrant, the demand for accountants will likely continue to outstrip supply in 2016 and beyond,” says Heng. For accountants exploring their options, certain factors come into play when employers select candidates – for instance, experience and specialised skill are particularly important. According to Heng, an increase in demand for professionals with specialised skills is noticeable, particularly for candidates with both a professional accountancy qualification and Master’s qualification as they can bring a combination of academic and professional perspectives. Who made it to the SBR’s list? Rising up to the top spot of this year’s list of largest accounting firms based on total staff is KPMG. Previously at third place, KPMG grew its staff to 2900 from 2400 a year ago. Quek Shu Ping, Head of People, Performance and Culture at KPMG, told the SBR team that they have increased their headcount across each of the audit, tax and advisory areas of business – particularly at a more senior level - by more than 14% over the past year.
singapore’s 30 Largest Accounting Firms 2015 rankings
ACCOUNTING FIRM
2014 2015 2014 2015 ACCOUNTING rankings TOTAL STAFF TOTAL STAFF PROFESSIONALS
1
KPMG
3
2,900
2,400
<2,900
Tham Sai Choy
2
PwC Singapore
1
2,579
2,500
1,271
Yeoh Oon Jin
3
EY (Ernst & Young)
2
2,360
2,436
2,040
Max Loh
4
Deloitte & Touche
4
2,200
2,000
<2,200
Philip Yuen
5
RSM
5
931
858
<931
Paul Lee
6
BDO
6
400
380
365
Frankie Chia
7
Foo Kon Tan
7
300
350
222
Kon Yin Tong
8
Baker Tilly TFW
8
250
220
220
Sim Guan Seng
9
Nexia TS PAc
10
220
180
200
Henry Tan
10
Moore Stephens
9
200
200
<200
Mick Aw
11
Crowe Horwath First Trust
11
178
160
<178
Tan Kuang Hui
12
Mazars
11
170
160
150
Denis Usher
13
PKF-CAP
14
98
90
92
Sajjad Akhtar
14
HLB Atrede
13
93
92
87
andrew tan beng hwee
14
Lo Hock Ling & Co.
14
93
90
72
pearlyn Chong
16
UHY Lee Seng Chan & Co.
17
82
77
75
Lee Seng Chan
17
BSL Group
17
75
77
70
N Vimala Devi/Lim Siow Jane
18
Cypress Singapore PAC
19
71
69
69
Lok Lai Cheng
19
CA TRUST PAC
23
68
50
54
Tan Lye Heng Paul
20
Kreston David Yeung PAC
20
64
60
53
David Yeung
21
RT
16
61
80
57
ravi arumugam
22
Heng Lee Seng
20
60
60
55
Michael Heng
23
K.G.Tan & Co.PAC
24
58
48
41
Tan Khoon Guan
24
Ardent Associates
-
54
45
47
Terence Ng
25
Infinity Assurance
-
50
50
45
Kuah Hong Woon
25
Grant Thornton Singapore
-
50
4
35
Peter Allen
27
reanda Adept PAC
22
48
52
43
Yin Kum Choy
28
FIDUCIA
-
43
22
43
Wayne Soo
29
3E Accounting
-
35
30
20
Lawrence Chai
30
Prudential PAC
25
31
30
11
Rahul Raj
MANAGING PARTNER
Data provided by companies. Survey period: August-September 2015.
SINGAPORE BUSINESS REVIEW | JANUARY 2016 39
CMO Briefing
Email marketing thrives in the social media era Contrary to the initial consensus social media has not killed the email marketing star—only complemented it.
W
hen businesses began embracing social media as a tool for marketing and advertising, many initially rushed to pronounce the demise of email, believing that platforms such as Facebook, Twitter, and Instagram have rendered email useless or irrelevant. Many businesses today, however, are proving this notion wrong as email marketing continues to thrive alongside social media. “While some pundits heralded the death of email with the rise of social media nearly a decade ago, it’s been quite the opposite. Email is alive and well, and a valuable tool in a marketer’s inbound strategy,” says Kipp Bodnar, chief marketing officer (CMO) at HubSpot. “Email continues to play an important role in how we connect with one another and how businesses reach their customers, especially as customers will opt in on email campaigns to stay informed on news, product updates, sales, tips, and other meaningful content,” he says. How relevant is email marketing today? Email marketing’s current relevance is highlighted by the fact that when it comes to data, the numbers do not necessarily signal a decline in email usage despite the advent of social media. “Just because social media usage has risen, it does not mean that people read less email. It only means that customers are becoming increasingly better multi-taskers and are able to engage many platforms at one time,” explains Elizabeth Tan, a branding strategist at Akin. “If anything, social media is a great supplement to email marketing as it is an extension of the brand experience into their (customers’) daily lives,” Tan adds.
40 SINGAPORE BUSINESS REVIEW | JANUARY 2016
Social media is great for brand awareness, but email is still the bread and butter for driving revenue.
In fact, 73% of marketers “agree that email marketing is core to their business,” a jump from 60% who agreed last year, according to Derek Laney, head of product marketing at Salesforce Asia Pacific, citing a study Salesforce did on the State of Marketing. In terms of raking in revenues, however, email marketing offers a clearer competitive edge over social media as the former still provides the most “bang for buck,” another industry leader noted. “Email is still incredibly relevant and it is by far the #1 revenue channel for most ecommerce companies—it beats paid search, organic search, and referral traffic hands down, and it typically outperforms social media revenue by a factor of five to 20 times. Social media is great for brand awareness, but email is still the bread and butter for driving revenue,” claims Paul Tenney, chief executive officer (CEO) and founder of Ematic Solutions. Nevertheless, companies that harness email marketing continue to face one major challenge familiar to any users of modern marketing tools: customer satisfaction. Customers, for instance, are becoming more sophisticated in their online habits, and continue to find ways to bypass marketing campaigns when they can. “Customers are increasingly smarter about managing their inboxes and will set up dummy email accounts or accounts that they check once in a blue moon which they provide at the point of sign-ups. This leads to undeliverable or time-lagged emails,” warns Loo Pei Fen, CMO at Challenger. According to Laney, it would be helpful to view email marketing under a different lens, vis-a-vis other marketing channels, in order to effectively engage customers. “The quest to capture consumers’ affection is not a race to the finish line, but rather an ongoing journey—one that spans numerous customer touchpoints and channels, especially that of email.” How does one come up with a great email marketing effort? Short and sweet remains the mantra of effective email marketing. “Effective email marketing should be short, to-the-point, and focused,” says Helen Ng, CEO and CMO at Lock+Store and Store Friendly Singapore, noting email marketing should cater to customer needs at a specific stage of the sales cycle. “Your EDMs (electronic direct mails) cannot speak to everyone - they need to speak to a preselected target audience,” Ng says. Tan Jian Yong, CMO at Page Advisor, notes that the most effective email marketing campaigns are those that engage with customers on an experiential level. “The key to doing email marketing is to do it the right way. We strive to engage and build relationships with our customers consistently,” Tan explains.
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Singapore’s 20 Largest Engineering Firms
Pool of engineers now smaller
Engineering sector losing its glam as a “cool” career
Employers continue to struggle to fill vacancies in Singapore.
W
hen Singapore began launching several public sector projects this 2015, demand for skilled professionals sharply increased, especially in the fields of construction and design. As public transportation continues to develop in Singapore, so does its demand for the highly trained professionals capable of carrying out the job. “In terms of skills in demand for the October to December 2015 quarter, we are also seeing high demand for Communication Based Train Control (CBTC) candidates, systems engineers and rail/road alignment designers,” says Lynne Roeder, managing director of Hays Singapore. However, it is becoming more and more difficult for employers to secure the talent required to complete these projects, for civil 42 SINGAPORE BUSINESS REVIEW | JANUARY 2016
It can sometimes be difficult to source civil engineers, especially those with more than 10 years of experience.
engineers in particular. While it is certainly a factor that most, if not all companies prefer to hire experienced local talent for permanent positions, the pool of engineers remains far smaller than the number of vacancies on the market. Losing attractiveness “Engineering on the whole has been steadily losing its attractiveness as a career option, especially in the eyes of the young, for years now. As with most sectors in Singapore, there is a manpower shortage; however engineering is one of the areas where the crunch is more acute,” says Ronald Lee, managing director of PrimeStaff, emphasizing that the practical basics of the engineering occupation need to be rethought in terms of the pay scale as well as overall career progression.
“The perception of engineering needs to be changed. It is now seen as unglamorous so perhaps the relevant trade associations should work with the authorities to come up with a branding campaign and paint such jobs as “cool” and interesting to encourage students to consider it as a career path as well as attract younger workers and get them to stay in the field,” he adds. In order to create appealing opportunities for candidates, companies in Singapore need to provide them with a workplace where their talents can be fully utilised and nurtured. With the abundance of jobs in Singapore, engineers have the rare opportunity of choosing between their best options. “It can sometimes be difficult to source civil engineers, especially those with more than 10 years of experience. More pressure is added to the tight talent market to produce highly-skilled local professionals that employers require,” says Femke Hellemons, Adecco Singapore’s country manager, on the difficulty of recruiting skilled engineers. “As we shift towards a Productivity Paradigm Change, talent shortages can be an issue as they can hinder the effectiveness of operations.” Who made it to the SBR’s list? In its third year of ranking engineering firms based on total number of registered engineers, Singapore Business Review expanded the list to top 20. Surbana Jurong, the result of the merger between Surbana International and Jurong Holdings emerged as this year’s largest with a headcount of 81. The list welcomes 3 new entries in the top 15, namely KTP International, Black & Veatch, and Fong Consult. In total, the new firm has over 3000 staff consisting of planners, architects, engineers and project managers. Second in the list is AECOM Singapore with 37 engineers.
Singapore’s 20 Largest Engineering Firms 2015 rankings
ENGINEERING FIRM
2014 rankings
TOTAL NO. OF REGISTERED ENGINEERS
2015 BREAKDOWN
2015
2014
MECHANICAL
civil
electrICAL
TOTAL NUMBER OF STAFF
KEY EXECUTIVE officer
1
Surbana Jurong*
-
81
-
13
57
11
3,039
Wong Heang Fine
2
AECOM Singapore**
2
37
42
4
31
2
738
Billy Wong
3
Parsons Brinckerhoff***
3
31
34
9
17
5
-
Guy Templeton
4
Arup Singapore
4
27
29
2
24
1
300
Peter Hoad
5
Beca Carter Hollings and
6
25
25
8
12
5
197
Lee Ang Seng
5
21
26
5
13
3
500
Shahzad Nasim
Ferner S.E.Asia (singapore) 6
Meinhardt Singapore (including Meinhardt Infrastructure)
6
t.y. lin international
9
21
19
3
16
2
203
teh hee seang
8
CPG Consultants
7
20
21
5
13
2
754
Khew Sin Khoon
9
Mott MacDonald Singapore
8
19
20
4
12
3
400
You Fook Hin
10
WorleyParsons
9
18
19
4
12
2
347
edmund poh
11
CH2M HILL Singapore***
13
13
12
5
7
1
-
Jacqueline Hinman
12
KTP International***
-
12
-
-
11
1
-
13
J.M.Pang & Seah
11
11
17
3
0
8
49
Lee Wai Meng
13
Black & Veatch (SEA)***
-
11
-
2
8
1
-
-
15
Rankine&Hill (Singapore)
15
10
10
2
5
3
131
Tan Peck Khoon
15
fong Consult***
-
10
-
10
0
0
130
-
17
Squire Mech**
13
9
12
5
0
4
50
-
17
DP Engineers***
-
9
-
2
4
3
-
-
17
Bescon Consulting
-
9
-
4
-
5
-
-
-
8
-
1
5
2
-
-
Yeo Choon Chong Song Wee Ngee
Engineers*** 20
Sembcorp Architects & Engineers***
Data provided by companies. Survey period: July - September 2015. *Surbana International Consultants Holdings (“Surbana”), and JURONG International Holdings (“JIH”) have successfully completed their merger. **unable to provide separate data for mechnical and electrical engineers. ***Data obtained from Professional Board of Engineers (PEB) as at August 2015. SINGAPORE BUSINESS REVIEW | JANUARY 2016 43
Singapore’s 20 Largest Architecture Firms
A slew of new projects in Singapore
Healthcare architects steal the spotlight in Singapore
Acquiring and retaining talent have become challenges for employers.
A
s public sector projects are put into action this 2015 in Singapore, the construction industry is seeing a consequential rise in demand: the increase in infrastructure requires a growing number of skilled professionals in various areas of the construction and architecture industry. These include recent developments in public transportation, housing, and land preparation works for Changi Airport. “The average construction demand is expected to be sustained between $27 billion to $36 billion in 2016 and 2017, in view of mega public sector, infrastructure projects required to meet the long-term needs of Singapore’s economy and growing population,” says Femke Hellemons, country manager of Adecco Singapore. “Based on 44 SINGAPORE BUSINESS REVIEW | JANUARY 2016
The average construction demand is expected to be sustained between $27 billion to $36 billion in 2016 and 2017.
estimations from the Building and Construction Authority, [the new projects] should account for 60% of all construction contracts in Singapore (up from 52% last year).” Demand for healthcare architects and medical planners has sharply increased as Singapore’s healthcare industry continues to grow. Interior designers are in high demand particularly for those with experience in workplace solutions, as well as project managers and architects. Labour shortage Singapore’s labour market is currently experiencing a shortage due to high demand – with more jobs available than there are job seekers, the employment rate has risen since June 2015. At the same time, professionals are more careful in weighing their options and prefer jobs where
they are provided more flexible schedules, healthcare, vacation days, and better career prospects in general, apart from the salary offered. “In candidate trends, we are seeing candidates keen to work in firms where they are given an opportunity to be a part of the full spectrum of the process, from design to construction. Candidates want to work with architectural consultancies, contractors and developers to understand both the consultancy and the client side of the process,” says Lynne Roeder, managing director of Hays Singapore. Personal growth as well as career growth has become major factors in deciding whether or not to accept a job offer, especially with the abundance of jobs in Singapore. “As we shift towards a Productivity Paradigm Change, talent shortages can be an issue as they can hinder the effectiveness of operations,” says Hellemons. Acquiring and retaining talent has become a challenge for employers, but one definite way to manage their employees is to invest in developing their talent, whether it is through formal education or through exposure to different experiences that would enable further learning firsthand. Who made it to the SBR’s list? DP Architects and AEDAS remained the two largest architecture firms in Singapore based on total number of registered architects with headcounts of 82 and 73, respectively. Surbana Jurong, a result of the merger of Surbana International Consultants and JURONG International Holdings, last June ranked third with 64 registered architects. In its third year of ranking architecture firms, SBR expanded the list to top 20. The list welcomes new entries including SCDA Architects, CIAP Architects, AC Consortium, AGA Architects, ID Architects and JGP Architects.
Singapore’s 20 Largest Architecture Firms 2015 NO. OF 2014 NO. OF 2014 REGISTERED REGISTERED ranking aRCHITECTS ARCHITECTS
2015 ranking
ARCHITECTURE FIRM
1
DP Architects
1
82
2
Aedas
2
73
2015 2015 NO. OF REGISTERED ARCHITECTS
TOTAL NUMBER OF STAFF
KEY EXECUTIVE OFFICER
LOCAL ARCHITECTS
FOREIGN ARCHITECTS
86
82
~
862
Francis Lee
84
18
55
281
Tony Ang and Kevin Jose
3
Surbana Jurong*
-
64
-
65
-
4,000
Wong Heang Fine
3
CPG Consultants
4
64
63
52
12
754
Khew Sin Khoon
5
RSP Architects Planners & Engineers
7
59
30
29
30
400
Lee Kut Cheung
6
ONG&ONG
6
49
37
28
21
533
Ong Tze Boon
7
ADDP Architects
8
29
29
29
-
152
-
8
WOHA Architects
9
22
24
14
8
89
Wong Mun Summ and Richard Hassell
9
P&T Consultants**
3
21
71
21
-
-
Choy Meng Yew
10
Architects 61**
10
19
19
19
-
-
Michael NGU King Teng
11
SAA Architects**
12
14
12
14
-
-
Yeo Siew Haip
11
MKPL Architects
11
14
15
7
7
48
Siew Man Kok
13
DCA Architects**
14
11
11
11
-
-
Koo Tin Chew, Vincent
14
SCDA Architects
-
8
-
7
1
112
Soo K. Chan
15
CIAP Architects**
-
7
-
7
-
-
Tham Tuck Cheong
15
Design Link Architects
15
7
8
7
-
49
Chong Nan Hing
15
AC Consortium**
-
7
-
7
-
-
Grace Young Tan Meow Hwa
15
AGA Architects**
-
7
6
7
-
66
Ng Hoe Theong
15
Formwerkz Architects**
-
7
-
7
-
20
-
15
ID Architects**
-
7
-
7
-
35
Loke Leong Seng
15
JGP Architecture**
-
7
-
7
-
-
James Goh
Data provided by companies. Survey period: July 2015 *Surbana International Consultants Holdings (“Surbana”), and JURONG International Holdings (“JIH”) have successfully completed their merger. **Data sourced from Board of Architects on July 2015. dP Architects does not keep track/record the figures for foreign registered architects.
SINGAPORE BUSINESS REVIEW | JANUARY 2016 45
Regional Industry Briefing: Asian Gaming
Turning the wheel of fortune
Asian casinos stack up for brewing battle Casino competition is heating up even more in Asia with dozens of new integrated resorts ready to pounce on the market, and many are betting big to stay in the game.
W
hen Melco International planned Studio City Macau, it created the most lavish leisure integrated resort in the Chinese territory in response to the biggest challenge for Asian gaming operators in the next decade: Stand out among the onslaught of new casinos and emerge as the chip leader. More than thirty new casinos are expected to open in the next five years, so Studio City Macau spared no expense by doubling the usual number of entertainment attractions, constructing a 5,000-seat multipurpose live event centre and establishing the world’s largest nightclub brand. Elsewhere across Asia, players are engaged in a construction arms race to build bigger and better casinos that they hope will attract not only VIP high-rollers but everyone else who wants to shop, dine out, book a luxury room and watch a spectacle. Rise of more casino titans The number of casinos in Asia is expected to increase from 200 to 230 over the next five years, says Aaron Fischer, regional head of consumer and gaming research at CLSA, and most of these additions will use the large-scale integrated resort model that dwarfs many of the small existing operations in the region. To illustrate the massive scale of the up-and-coming batch of casinos,CLSA expects a near-doubling of capital expenditure during the period to roughly US$90 billion. 46 SINGAPORE BUSINESS REVIEW | JANUARY 2016
“The number of casinos in Asia is expected to increase from 200 to 230 over the next five years.”
There might be concern whether Asia can handle the crush of large casinos, especially as the Macau market undergoes a shakeup, but Fischer believes the pie is large enough for everyone to get a filling slice. “It’s raining casinos, which is scary, given the slowdown in Macau,” says Fischer. “However, after performing both top-down and bottom-up analyses, we conclude that Asia can comfortably absorb this capacity increase.” Fischer reckons that comparing the US and Asian markets, the former has c.1000 casinos or three per million capita while the latter only has c.200 casinos or 0.05 per million capita. With more casinos competing, it is expected that revenues will taper off, but not so much to terribly hurt the operators. In Macau, for example, Fischer expects the average return on invested capital (ROIC) to substantially drop from 34% on existing properties to around 21% for new properties – a rate that still comfortably exceeds the average cost of capital, as well as the global average ROIC for major projects in the US and Australia. “We also compare gaming ROIC to other tourism investments and note that gaming remains a high return industry and the best way to play the Chinese tourism story,” says Fischer. The lucrative revenues from the gaming sector has helped drive not only investor interest but also government support, which in turn has opened a number of
Regional Industry Briefing: Asian Gaming markets for new casinos. “Strained budgets mean governments at both the national and local level are looking for new sources of revenue. Rather than slashing services or raising taxes, many are either considering or are already committed to legalising gaming, including Japan and Vietnam in Asia,” says Fischer. But he reckons that while many jurisdictions are entering gaming, not all will bring fortune to investors. Some markets like Australia appear to have rosy prospects but the likes of Macau may be in for a rougher ride. Stand out to survive Operators realise that it is no longer enough to build grandiose casinos if they hope to rake in enough revenues. Asians are expecting casinos to go beyond building magnificent gaming floors, and also offer memorable innovations and stage dazzling one-of-a-kind attractions. Top gaming executives that recognise the changing tastes of Asian customers have no qualms meeting these expectations. “We believe that investing in high-quality integrated resorts, with a significant proportion of non-gaming amenities which requires a meaningful capital investment, is critical to compete over the longer term as supply increases and more discerning customers demand a unique leisure and tourism experience,” says Lawrence Ho, chief executive officer and chairman of Melco International. Ho says that his company is familiar with taking this more innovative approach through its experience in building crowd-pleasing attractions such as the award-winning, The House of Dancing Water show - Macau’s only cabaret show; Taboo; and Macau’s largest family entertainment centre, Kids City. The House of Dancing Water, in particular, has been seen by over three million customers, which further cemented the idea that world-class entertainment attractions are playing a bigger role in a market historically focussed heavily on gaming. Fischer says non-gaming amenities are increasing in importance, not just in Macau to appease the government as it tries to diversify its offerings, but regionally, as a product differentiator. The glut of integrated resorts coming to market has made it essential to differentiate, he adds, and there are many ways an operator can go about it. “Iconic design and special ‘wow’ features must be embedded into large-scale IR projects. They need to be unique,” says Fischer.“Internals are just as important as Installed capex base by region
Source: CLSA
Melvyn Low
Choong Wai Hong
Non-gaming amenities are increasing in importance
externals; spending too much money on the exterior architecture and spending too little on the interiors is a mistake.” Given these challenges and factoring in the operating environment across each country in the region, investors would do well to avoid Macau, find plays in Australia and approach Singapore with a bit of caution. Macau plummets With declining returns and profitability across the territory, Macau is losing its investment appeal. Global gaming revenues have fallen noticeably following the crackdown on corruption and money laundering by the Chinese government, says Neil Tisdall, analyst at Scotiabank, and Macau has been particularly affected with its gaming revenues expected to slump by a third this year,which would be its lowest since 2010. “This represents a dramatic change from recent years, as gaming revenue had surged tenfold since American casinos were granted permission to operate in Macau in 2003,” says Tisdall. He says Macau has been hurt by the exodus of VIPs after the anti-corruption measures enforced by Beijing, forcing them to either curtail their gambling or move their business to casinos in other jurisdictions. This is a hard punch to take, especially for US-based casinos, which depended on VIP gaming for up to a quarter of their total Macau profits. There is little certainty that the situation will ease up anytime soon. “It is uncertain whether further measures will be taken by Beijing in addition to the debit card tracking and travel restrictions that have been put into place recently, and how the anti-corruption campaign will affect the slew of new resorts and casinos that are scheduled to open this year,” says Tisdall. “In addition, new smoking bans in Macau are a further deterrent. If high-stakes gamblers are unable or unwilling to return to Macau, there are comparable casino options in Singapore and the Philippines, home of several multibillion dollar developments,” he adds. Tisdall reckons that uncertainty will be a continuing theme in Macau as investors and high-rollers alike wait SINGAPORE BUSINESS REVIEW | JANUARY 2016 47
Regional Industry Briefing: Asian Gaming for clarity, but long-term prospects for gaming on the peninsula remain upbeat, given the size of the domestic Chinese market and the rapidly expanding middle class across developing Asia. Australia forges ahead While Macau goes through some tough times, Australia appears to be flying high, partly on the tailwinds of VIPs transferring from Macau. “We are most positive on the Australian gaming market in the Asia region,” says Andrew Russell, analyst at Macquarie Capital Securities. “We think Australia has everything going for it at the moment, from gross gaming revenue and EBITDA growth to improving margins and ROICs.” Investors should also smile at the fact that Australian casinos are the highest dividend payers in Asia while the sector remains relatively cheap. Russell says all three Australian casinos pay high dividend payouts – yielding 4-5% each versus Asia average of 2.9% -- and Australia is the second cheapest market in Asia now behind Singapore, to boot. He says Australian casinos are growing GGR at a strong 10% rate on a high base in a mature market along with improving profitability, driven by a cheaper currency and lower VIP tax rates that have been attracting Chinese gamblers displaced from the Macau purge. “The Australian gaming market is benefitting from a depreciating currency which is leading to more mass and premium mass players from Asia including China and from lower VIP tax rates which is allowing the Australian casinos to pay higher VIP junket commissions,” says Russell. He reckons the Australian casino sector is well positioned to capitalise on the structural decline of the Macau VIP segment, with several key factors making it one of the primary destinations for Chinese gamblers turning away from Macau. These factors include a lower VIP tax rate in Australia improving the competitive setting to attract junkets, a depreciating Australian dollar which boosts Australia’s attractiveness as a tourism destination, lower minimum bets and qualification for VIP status encourages greater premium mass, offering alternative source of credit for players, excess capacity on domestic casino floors, improved accessibility to Australia from Asia, and greater non-gaming attractions. Russell cites improved transport accessibility from China as a key industry enabler in the coming years. DurMacau ROIC and capex
Source: CLSA, companies
48 SINGAPORE BUSINESS REVIEW | JANUARY 2016
Singapore gaming remains ho-hum
“Singapore’s market GGR has likely bottomed out after falling by as much as 34% in 2014 through to 2Q15.”
ing 2014, 100 million Chinese tourists travelled abroad, which is anticipated to increase to roughly 200 million by 2020, according to Tourism Australia industry forecasts. Approximately 765,000 Chinese tourists visited Australia in 2014, but Australia is looking to raise this number, as aviation capacity from China to Australia over the next two years is expected to triple, per an agreement with the Department of Foreign Affairs and Trade. With droves of Chinese tourists set to bump up VIP revenues in Australian casinos, Russell expects +4.2% CAGR through FY18 in total domestic GGR, with annual growth in VIP turnover of +3.1% CAGR through FY18. Singapore stops bleeding Meanwhile, Singapore remains ho-hum with a mixed bag of investment factors. It offers solid returns at a cheap price – in fact, the country is the most profitable market amongst Asian gaming countries and is the cheapest on valuations – but one should not overlook that it is a mature market with flat growth, says Agarwal. He says those worried about falling revenues can take comfort from the fact that Singapore’s market GGR has likely bottomed out after falling by as much as 34% in 2014 through to 2Q15. “Most of this decrease has been driven by VIP GGR, which has fallen by 56%. Mass market GGR has been resilient with only a 6% fall in the same period,” says Agarwal. “As the number of Chinese VIPs declines, the structure is changing. Singapore market growth in the first few years was driven by Chinese VIPs, to which both the casinos extended direct credit in the absence of junkets. However, given the sharp decline in the number of Chinese VIPs in 2015, Singapore’s VIP GGR has witnessed a sharp 31% decline. Thus, the market composition is now gradually leaning towards the mass market. Singapore’s mass market revenues have been extremely resilient even in a weak market, thus enabling Singapore casinos to make robust margins and profits,” says Agarwal.
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