5 sectors best positioned for the coming years

As we welcome the second half of 2024, it may be time for investors to reconsider their portfolio strategies.

The first half of 2024 provided valuable insights into the growth potential of certain sectors thanks to key events and market trends.

Taking these changes into account, they identified five key industries that are well-positioned for success in the coming years, as well as the companies that will benefit from this growth.

Pure energy

In his speech on Singapore’s Budget 2024, DPM Lawrence Wong stressed the importance of protecting Singapore’s internal energy security.

The government has unveiled plans to increase electricity production while committing to a clean energy transition.

This commitment is evidenced by the establishment of the Future Energy Fund, with an initial injection of A$5 billion to invest in infrastructure and technologies exploring various forms of clean energy.

The main focus is on hydrogen as the best clean fuel candidate, although other sources such as geothermal and nuclear energy are also being explored.

We’ve identified two companies that are well-positioned to take advantage of this transformation.

They are Keppel limited liability company (SGX: BN4) i Sembcorp Industries (SGX:U96).

Keppel is one of the largest asset managers and operators in the country. The group has a range of key infrastructure that can help the country successfully and quickly transition to green energy.

Most importantly, Keppel is working on Singapore’s first hydrogen-ready power plant, the 600 MW Keppel Sakra Corgen Plant, which is expected to be operational by 2026.

Keppel announced record profit for fiscal year 2023, the details of which we will discuss in detail in this article.

Similarly, Sembcorp Industries is also one of the country’s leading players in the renewable energy market. In 2022, it announced strategic partnerships with Japan and various corporations on hydrogen initiatives.

Primarily, Sembcorp Industries is exploring technology to transport decarbonized hydrogen from offshore locations to Singapore, expecting operations in 2026.

We anticipate that Keppel and Sembcorp Industries will lead the way in achieving the national clean energy goal while receiving significant support from the government.

Semiconductors

Despite a temporary slump in 2023, the semiconductor industry is stronger than ever.

Global semiconductor sales in the first quarter of 2024 increased 15.2% year-over-year, led by a surge in demand from China and the United States.

A new wave of optimism swept through the market Taiwanese semiconductor company (NYSE: TSM) announcing a 60% year-over-year sales increase in April.

The Semiconductor Industry Association (SIA) forecasts that semiconductor capacity will double between 2022 and 2032, with the United States leading the way.

The country is expected to triple its production capacity by then.

One of the companies that wants to cooperate is Micromechanics (SGX: 5DD).

The company specializes in the design, manufacture and sale of precision parts and tools necessary for wafer fabrication and other process-critical applications in the semiconductor industry.

Micro-Mechanics currently serves a global customer base, with operations in key semiconductor centers such as the US, Taiwan and China.

Looking at the latest quarterly results, the US and China contributed significantly to the group’s revenues, contributing 16.6% and 35.1% respectively.

In the third quarter of fiscal 2024, Micro-Mechanics reported a year-on-year sales decline of 8.7%, from S$14.9 million to S$13.6 million.

However, profits increased by 12.8%, from S$1.6 million to S$1.8 million, mainly due to effective cost management and resource optimization.

Despite declining sales, largely due to an industry-wide slowdown, Micro-Mechanics is on track for economic recovery with the resurgence of the semiconductor sector as a significant player in the midstream supply chain.

More information about other semiconductor companies in Singapore can be found here.

Technology and Telecommunications

Returning to DPM Lawrence Wong’s Budget 2024 speech, Singapore has set a goal to establish artificial intelligence (AI) as a key industry.

This is reflected in the launch of the National AI 2.0 Strategy, which includes an A$1 billion investment over five years to grow the sector and improve the national broadband network.

The government plans to improve infrastructure and attract and enhance talent to create a thriving environment for significant advancements in artificial intelligence.

Here are two companies we think will benefit from Singapore’s strategic focus on AI.

Global Aztech (SGX: 8AZ) is engaged in design and manufacturing, and one of its key products is Internet of Things (IoT) devices.

IoT devices, such as smartwatches and smart home devices, are pieces of hardware that transmit data from one platform to another.

The role of artificial intelligence makes IoT devices learn faster, making systems smarter and more efficient.

The company has recognized the transformative capabilities of AI and plans to integrate AI into its products and operations.

Following Aztech’s first quarter 2024 results, net profit increased to A$15.9 million, an increase of 18.7% year-on-year.

However, revenue fell by more than 20%, from S$161.6 million to S$128.6 million, which was attributed to rescheduling of customer orders due to severe snowstorms in China.

Despite this, the company’s order backlog remains high at A$456 million, indicating good prospects.

Trust NetLink NBN (SGX: CJLU)

NetLink designs, builds, owns and operates passive fiber infrastructure for a nationwide broadband network in Singapore.

The company will play a key role in Singapore’s goal of enabling mass market access to increased broadband speeds of up to 10GB per second in the second half of this decade.

The fiber optic network infrastructure is of great importance to the development of Singapore’s technology sector, providing an ideal medium for the development of the Internet of Things, further complementing Aztech Global.

Finally, Netlink Trust is a reliable dividend payer, committed to distributing 100% of the cash available for dividends.

Over the past five fiscal years, the fund has consistently increased its distribution per unit (DPU). FY2024 DPU increased again, from S$0.0262 in FY2023 to S$0.0265.

Maritime

Singapore’s maritime industry underpins our trade and economy and transports over 80% of the world’s cargo.

As an important enabler of global trade, the development of e-commerce is expected to significantly accelerate the growth rate of the maritime sector.

Singapore remains committed to maintaining its status as a global maritime center.

This focus can be seen in the construction of the Tuas Mega Port, the largest fully automated port in the world, which is expected to be operational by the 2040s.

There are also exciting developments taking place in the industry in the medium term.

Headquarters (SGX: 5E2) is a leading global maritime group, specializing in a wide range of maritime activities, including shipbuilding and repair.

The company is at the forefront of transforming the shipping industry through digitalization. The company recently partnered with A*STAR to explore artificial intelligence in maritime applications, such as improving ship designs through automation.

Technology Engineering Singapore (SGX: S63) is also making waves in the maritime sector by developing autonomous ship technologies.

The company has developed the NERVA system, which enables centralized control and remote monitoring of the platform’s sensors and systems, impressing with its operational capabilities and performance.

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Disclosure: Aw Kai Rui does not own any of the stocks mentioned in this article.