We live in a technology world today. Technology enables many of the things we do each day – from searching for information, communicating to our family, getting our work done, and following what our friends are doing. As such, it comes as no surprise that some of the biggest and fastest-growing companies in the world today are technology companies.
Unlike traditional businesses that tend to find their economic moats in just one country or region, technology companies are rarely restricted geographically. The nature of their business is such that if a company can create quality products or services that their customers will want, they can quickly scale it globally.
This means that many leading technology companies tend to have a global footprint and identity. And this includes some Singapore technology companies that have a Singapore heritage.
In this edition of 4 Stocks This Week, we highlight 3 Singapore technology stocks and 1 technology ETF that you can consider investing in.
Razer Inc (HKG: 1337)
Razer was founded in 2005 by Tan Min-Liang, a Singaporean NUS graduate. While the company’s original HQ is in California, it also has a dual HQ in Singapore’s One-North technology business park and a total of 17 corporate offices around the world.
As a testimony that top technology companies are pretty much global entities, Razer Inc (HKG: 1337) has been listed on the Hong Kong Exchange since November 2017. With its current share price of HKD 2.52, its market capitalisation is currently HKD 22.14 billion (S$3.84 billion).
Earlier this week, Razer announced their FY2020 results, and it was a good one. As shared by CEO and Founder Tan Ming-Liang, “despite the global market uncertainty caused by the COVID-19 pandemic, Razer crossed the US$1 billion revenue milestone and turned profitable on a GAAP basis, ahead of all expectations.”
The company also turned profitable ahead of most analysts’ expectations with a net profit of US$0.8 million. It also has a cash balance of more than US$600 million with no debt, one of the strongest balance sheets in the industry.
Razer is in an interesting position now. Most fast-growing technology companies tend to gain strong growth at the expense of profitability. Razer has managed to continue growing strongly (32.7% compounded annual growth rate for revenue) since their IPO, invest heavily in R&D and yet, turn profitable, all at the same time – without taking on any debt as well.
Razer’s share price has performed well over the past year, going from HKD 0.97 on 30 March 2020 to HKD 2.52 as of 26 March 2021.
Sea Limited (NYSE: SE)
Sea Limited (NYSE: SE) started in May 2009 with Garena, an online game developer and publisher. It was founded in Singapore by Forrest Li, a naturalised Singapore citizen and two other co-founders. In 2015, it launched the Shopee platform.
Sea itself was listed on the New York Stock Exchange (NYSE) in October 2017 at an initial IPO price of US$15. Its shares are now trading at US$209.24 as of 26 March 2021. It currently has a market capitalisation of about US$106 billion.
For Sea’s FY2020 results released earlier this month, the group recorded total revenue of US$4.4 billion, up 101.1% from the year before. Its gross profit margin was US$1.3 billion, up 123% compared to the year before. Net loss for the group in 2020 is at about US$1.6 billion.
It is worth noting that Sea is still pretty much a growth company – and it’s paying a lot for this growth. Even as its top-line revenue and market share grows quickly, the company is also incurring larger losses as it pursues this aggressive growth strategy. The fundamental question, as it is with all fast-growing technology companies, is whether the group will be able to turn its leading market position into sustainable profits in the future.
iFAST (SGX: AIY)
iFAST (SGX: AIY) is Financial Technology (FinTech) company founded in Singapore in 2000 by Lim Chung Chun even before the word FinTech was coined. The company was listed on the Singapore Exchange (SGX) in December 2014. Over the past year, its share price has been on a tear, increasing from S$0.80 on 30 March 2020 to S$5.94 as of 26 March 2021. This puts its current valuation at S$1.77 billion.
For FY2020, the company has seen strong growth with its revenue increasing 35% to $169 million. Net profit is at S$20.9 million, an increase of 125% as compared to FY2019.
iFAST is a profitable and established company that is part of a very lucrative, fast-growing but competitive FinTech space. As most of us would know, FinTech is a huge growth opportunity for Singapore and the region around us. This has led to the proliferation of many FinTech start-ups entering the Singapore market. As an established local player, iFAST is well-positioned to capture this growth if it can continue to take advantage of its leading position in this space.
Lion-OCBC Securities Hang Seng Tech ETF (SGX: HST/HSS)
The Lion-OCBC Securities Hang Seng TECH ETF is an index-based ETF. This means it seeks to replicate the performance of the index it’s tracking as closely as possible, which is the Hang Seng TECH Index. In turn, the Hang Seng TECH Index represents the 30 largest technology companies listed in Hong Kong that have high business exposure to technology themes and pass the index’s screening criteria. Companies within this ETF include the likes of Alibaba, Tencent, Xiaomi and JD.com.
Strictly speaking, this ETF doesn’t have much of a Singapore heritage except for one key factor – it’s listed like on the SGX.
This represents an excellent opportunity for Singapore investors who want to invest in technology companies based in China & Hong Kong. And as Singapore investors, we don’t need to open a local or overseas custodian account. This means we can hold the Lion-OCBC Securities Hang Seng TECH ETF directly in our CDP account.
It’s also the first tech-focused ETF listed on SGX. This makes it a good choice for those of us who want to invest in technology stocks but are unsure or not keen to specifically choose which companies to invest in.
Currently, the ETF is trading at S$1.379 (do note there is an option to also invest via USD) which translates to a year-to-date return of -4%.
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4 Stocks This Week is not a recommendation from us to buy or sell any of these stocks. For investors who are keen to find out more, you should continue researching about them before making your investment decisions.