Singapore Stock Buyback Surge in Q1: What It Means and What Lies Ahead

During the first quarter of 2024, fifty Singapore-listed companies actively engaged in share buybacks through the market, shelling out approximately S$ 230 million, more than doubling the amount from the same period last year. In comparison, around forty major listed companies repurchased shares in the first quarter of 2023, with a total expenditure of about S$ 110 million.

Share buybacks represent a significant corporate financial strategy, signifying that a company has relatively abundant cash and is choosing to reinvest in itself. This action can often be interpreted as a signal of self-confidence from the company's management, suggesting that they believe the company's shares are undervalued or that there are no better investment opportunities available. Essentially, buybacks can enhance shareholder value by reducing the number of outstanding shares, which can lead to an increase in earnings per share (EPS) and potentially boost the stock price.

Here are key reasons why buybacks are important to investors:

1. Enhanced EPS and Stock Price Potential: By purchasing its own stock, a company reduces the number of shares outstanding without affecting its reported earnings. That increases the company's earnings per share and, so the argument goes, the price of a share should rise accordingly.

2. Tax Efficiency: Buybacks can provide investors with a more tax-efficient way to receive income from their investment since capital gains are typically taxed at a lower rate than dividends.

3. Signal of Financial Health: A buyback program may indicate that the company is financially robust, with ample cash reserves, and that management believes the stock is undervalued, which can be reassuring for investors.

As the earnings season looms, the question of whether Singaporean companies will sustain their share buyback initiatives into the second quarter emerges as a focal point for investors. Thus far, of the fifteen stocks with the highest buyback value in the first quarter, three have revealed their plans for repurchasing shares in the second quarter: CDL, SIA, and Olam.

City Developments Limited (CDL), a prominent Singaporean property developer, has commenced a share buyback program on March 8, in response to what it perceives as a significant undervaluation of its shares. The company acquired 954,000 ordinary shares, representing 0.11% of its issued share capital, at an average price of $5.75 per share, totaling $5.5 million.

This buyback move comes on the heels of CDL's recent financial results, which showcased record revenues but a sharp 75% drop in net profit due to higher financing costs. CDL's shares were bought back at a 43% discount to the net asset value of $10.12 per share and a 70% discount to the revalued net asset value of $19.461 per share as of the end of last year.

Group CEO Sherman Kwek highlighted the share buyback as a testament to the company's confidence in its strong fundamentals and growth prospects, despite the broader market's macroeconomic challenges leading to depressed stock valuations.

CDL's buyback is following the share purchase mandate approved at the last annual general meeting, which allows the company to repurchase up to 10% of its total issued ordinary and preference shares. The repurchased shares will be held as treasury shares and may be used for the company's long-term incentive plans.

Following a previous off-market equal access offer to buy back preference shares, CDL underscores its commitment to aligning interests with shareholders and strategically managing its capital. Shares of CDL saw an uptick of 1.2% to close at $5.75 on the day of the announcement.

Singapore Airlines has demonstrated its commitment to enhancing shareholder value by launching a share buyback program that aims to repurchase up to 5% of its total issued share capital. Commenced on March 7, 2024, the program allows the airline to buy back shares at up to 105% of their average trading price over the preceding five days on the Singapore Exchange. This move is a confident affirmation of the company's financial health and a strategic effort to optimize its capital structure.

Simultaneously, Singapore Airlines is progressing with its operational advancements by announcing plans to phase out its older B737-800 fleet in favor of the newer, more fuel-efficient B737-8 aircraft. This transition, set to begin in September 2024, is a part of the airline's broader efforts to modernize its fleet, improve customer experience, and reduce its environmental footprint. The move also coincides with the airline's successful traffic figures, reflecting a robust recovery and an increase in passenger numbers, which further reinforces the airline's financial stability and future growth prospects.

The implementation of these strategic initiatives underscores Singapore Airlines' proactive approach to maintaining financial resilience and staying at the forefront of the aviation industry's evolution. Through careful capital management and a focus on long-term operational sustainability, the airline continues to navigate the dynamic aviation landscape, aiming to deliver greater efficiency and value for its stakeholders.

Olam Group, responding to delays in its agri unit's IPO, has initiated a share buyback for up to 5% of its outstanding shares, signaling confidence in its financial health and commitment to delivering shareholder value. CEO Sunny Verghese expressed optimism about the company's growth trajectory, especially following a strong second half of 2023, and reassured investors of strategic steps being taken amidst challenging economic conditions.

The company plans to renew its share buyback mandate at the upcoming Annual General Meeting in April 2024 and is maintaining a flexible approach to the proposed dual listings of its ofi and Olam Agri units. This flexibility includes the exploration of alternative strategic opportunities to enhance shareholder value.