(Nov 13): The Edge Singapore is publishing its inaugural financial technology (fintech) supplement as official media partner of the Singapore FinTech Festival, organised by the Monetary Authority of Singapore, in partnership with the Association of Banks in Singapore and in collaboration with SingX.

As a business and investment weekly, our stories focus on business, economic and regulatory news, and what they mean for companies and investors. We have strived to remain true to form in this special focus by discussing the business environment specifically within fintech.

Singapore has been ranked alongside London as the world’s No 1 fintech hub by Deloitte. That is a major positive for the fintech community and financial institutions here.

In our Cover Story, Jacqueline Loh, MAS deputy managing director, monetary policy & investment/development & international/fintech & innovation, discusses some of the regulatory issues concerning fintech that are being faced by central banks and regulators.

We also speak to the country head of the world’s third-largest bank, Bank of China, to understand how fintech is being used in China and how Singapore can benefit from its experience. In another story, Sumitomo Mitsui Banking Corp (SMBC), one of Japan’s mega banks, relates how it is already using artificial intelligence and blockchain for some processes. In addition, Prudential Singapore’s CEO, Wilf Blackburn, describes how the 200-year-old insurer is using fintech to improve its product suite and future-proof its sales force.

Fintech is changing financial institutions in every way imaginable. With the increasing use of mobile devices, banks are now articulating that bank branches may no longer be needed. Case in point: Ryuji Nishisaki, country head of SMBC, says the banking group launched a digital bank in Indonesia in 2015 in collaboration with its partner Bank Tabungan Pensiunan Nasional.

Fintech is also changing the way financial institutions interact with each other. MAS created a Digital SGD prototype so that about 10 banks can perform interbank transactions with each other on the blockchain without MAS as the central trusted party. Blockchain technology has the potential to cause huge disruptions, changing the way financial institutions and their customers operate and displacing many intermediaries.

Investing in fintech Many fintech innovations — even those that are being commercialised – would pose enormous risks to investors. Regulators are working around the risks and opportunities through their regulatory sandboxes, where innovations can be tested and their results understood.

In view of the risk that fintech start-ups and unicorns pose to investors, we believe it is safer to put their money on established companies that are the backbone of fintech. We have compiled a list of stocks that are players in the technologies, services and hardware used extensively by the fintech community.

The table of stocks features fundamental and valuation scores from AbsolutelyStocks.com. The fundamental score is a snapshot of the company’s profitability and balance sheet strength derived using a composite of ratios based on historical numbers. The score ranges from 0 to 3. A score of 0 implies that fundamentals are weak and a score of 3 is an indication of strong fundamentals. The valuation score is a snapshot of the stock’s attractiveness in terms of valuations derived using a composite of ratios based on historical numbers. The score ranges from 0 to 3. A valuation score of 0 means valuations are not attractive while a score of 3 means valuations are very attractive.

Among those in the table are the hardware companies that provide the infrastructure for much of the fintech area. Taiwan Semiconductor Manufacturing Corp, the world’s largest pure-play foundry company, has the highest fundamental score and a fairly robust valuation score of above 2. United Microelectronics Corp, TSMC’s Taiwanese competitor, has a higher valuation score. Foundries are an important cog in the wheel of the fintech value chain. Without microchips, cloud computing and servers, the likes of Google, Facebook, Alibaba Group Holding and Tencent Holdings would not exist.

Foxconn Technology Co is a Taiwanese multinational electronics contract manufacturing company best known for making iPhones. It has also attracted attention because of plans to automate its factories. The company is producing foxbots to replace human labour and aims to be 30% automated by 2020. Foxconn plans to automate entire factories eventually.

Cloud computing is being seen increasingly as the future of technology. Under CEO Satya Nadella, Microsoft is now the largest cloud computing company globally, according to observers. For the three months to Sept 30, revenue from its intelligent cloud segment was US$6.9 billion ($9.4 billion), up 14% y-o-y and accounting for 28% of its total revenue of US$24.5 billion. Server products and cloud services revenue rose 17%, driven by Microsoft Azure, whose revenue surged 90% y-o-y.

International Business Machines manufactures computer hardware, middleware and software, and offers hosting and consulting services for products as diverse as mainframe computers and nanotechnology. For the third quarter, IBM reported net income of US$2.7 billion, down 4% y-o-y. Gross margins fell marginally to 45.9%. The company’s 3QFY2017 revenues from the cloud rose 20% y-o-y to US$4.1 billion.

Until June this year, Intel was the largest semiconductor chip maker. In terms of revenue, it was overtaken by Samsung Electronics, which is the largest mobile phone maker in the world. In addition to mobile phones and related devices, Samsung also manufactures televisions, cameras and electronic components.

Advanced Micro Devices is the largest maker of PC microprocessors after Intel. The company makes flash memory, integrated circuits for networking devices and programmable logic devices. AMD made a US$18 million loss for the nine months to Sept 30, and has losses for the past three years, which is why its valuation score is 0.

Interestingly, Intel and AMD announced a collaboration in which Intel processors will pair with AMD graphics chips in a product that will enable PC gamers to play graphics-intensive games on lightweight laptops. New computers using Intel processors will automatically come with an AMD chip. Currently, Nvidia is the leader in high-end graphics chips and competes directly with AMD. Nvidia has a fundamental score of 1.95 and a valuation score of 1.1.

On Nov 6, Broadcom launched a hostile takeover bid for Qualcomm worth US$103 billion. Both companies design semiconductor chips for wireless and broadband communication equipment. Broadcom was acquired by Avago Technologies last year and the merged entity was renamed Broadcom. A combined Broadcom-Qualcomm would become the dominant supplier of chips used in smartphones. According to Gartner, as at 2016, Intel had 15.9% of the chip market, Samsung 11.8%, Qualcomm 4.5%, SK Hynix 4.2% and Broadcom 3.9%. Broadcom has a fundamental score of 1.35 and a valuation score of 0.5, an indication that it is overvalued. Qualcomm has a fundamental score of 2.6 and a valuation score of 1.5.

Cisco Systems develops, manufactures and sells networking hardware, telecommunications equipment, and provides security services for the cloud. For 4QFY2017, the company announced that product revenue performance was led by its wireless and security segments, which increased 5% and 3% respectively. Its year-end is July 29. Net income for FY2017 fell 11% to US$9.7 billion.

Finally, a word on cryptocurrencies. While they are popular with investors and speculators, they have also drawn the scrutiny of regulators. Unlike companies, cryptocurrencies do not have the earnings and earnings growth potential; neither do they have business plans and strategies. As such, AbsolutelyStocks cannot generate fundamental and valuation scores for them.

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