Securitization
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Securitization
Securitization allows an issuer to finance certain assets, mortgage loans and/or consumer debts and transform them into bonds or other forms of debt security that can then be traded or sold to a trader for a certain sum that can be used by the company to invest in itself or to expand the company.
What Is securitization?
Securitization is a process that allows a company to pool all of its assets and transform them into bonds or securities that can bear interest. Investors can now purchase these bonds for a certain amount, and in return they will receive the principal and the interest amounts. A mortgage-based security is one fine example of securitization.
Understanding securitization
Take mortgage-based security loans for example. The original lender will sell a bunch of home loans to a bank or any other financial institution that in turn will turn these loans into a single unique investment package. The bank will then allow the public to invest in the package, for which they will receive principal and interest amounts from the various loans inside the package.
How much the public receives in the form of interest and principal will be in proportion to the amount they invest in it. Unlike other investments, it’s a win-win situation for every party involved. The investors get paid in the form of principal and interest amounts, while the original lender gets to clear out any liabilities that often arise in these situations. This is one of the reasons why the public isn’t as enthusiastic about it as they once were.
The public believes that securitization often leads to unnecessary borrowing and debt, especially after the 2008 economic crisis.
Working of securitization
Securitization is a process that begins when the original lender sells a bunch of assets to a financial institution. Here’s a detailed breakdown of how the securitization process works.
- The original lender who is in possession of certain assets that it no longer needs may decide to sell them. This not only allows them to get rid of unnecessary assets but also helps them avoid any liability from the assets. They will then pool the assets into a reference portfolio, ready to be sold. These assets can be anything from mortgage loans to personal loans.
- The original lender will then sell the reference portfolio with all its assets to a financial entity such as a bank or private lender. The financial entity will then turn the assets into a security where the public can invest in. Once an investor invests in the assets, he will in return receive principal and interest payments proportional to the stake they bought. The higher the securities you buy, the higher your stakes will be in that reference portfolio.
- Potential investors purchase these securities at a certain rate of return. The original lender receives all the payments, which will be then transferred to the bank apart from a small fee. The bank will then pay the investors from that.
Advantages and disadvantages of securitization
Here are the advantages of securitization:
- The original lender, also known as the originator, is in possession of a bunch of assets that he is unable to sell. Securitization allows him to sell these assets and free up the money blocked in those assets. This allows him to focus on other investment options.
- The financial entity can shift the risks by securitizing its receivables.
- The financial entities get to diversify its portfolio by bringing in securitized securities. These bonds are a lot different than any other form of security.
- The originator can also gain some financial leverage from the financial entities. This can certainly help when the originator is in need of some cash.
Here are some disadvantages of securitization:
- There’s very little to no transparency between an investor and the bank. That means an investor has very little knowledge of the kind of assets that are involved in the said bond.
- The securitization process involves multiple parties and handling everything can be a difficult process.
- There are a lot of processes involved in securitization, including legal proceedings, administrative and underwriting, among others. This increases the cost of securitized bonds.
- The investors are the ones at the highest risk and the originator gains the most.
Example of securitization
Here are a few examples of securitization:
- Government National Mortgage Association (GNMA)
- Federal National Mortgage Association (FNMA)
- Federal Home Loan Mortgage Corporation (FHLMC)
Frequently Asked Questions
Securitization involves the financing of multiple types of assets into a singular unit. Here are the 5 asset types of securitization:
- Mortgages: In mortgages, securitization happens with home loans that are combined into one large portfolio before it is sold to financial institutes.
- Auto loans: Auto loans or car financing is a form of ABS securitization that is initially combined together but later split into multiple groups according to their risk profiles. They are then sold to potential investors.
- Credit card receivables: It’s also a form of ABS securitization and it involves buying a certain stake from the credit card balance.
- Student loans: Student loans are provided to students who require loans to finish graduation from college. It’s a great opportunity for investors as these are protected by the US Department of Education.
Securitization and factoring are two different ends of the spectrum. Securitization is the process of financing and refinancing existing assets into one single unit, which the public can invest in. While factoring refers to the process of selling receivable accounts in a bid to increase the flow of cash.
It refers to the process of pooling certain assets, such as debt securities, into bonds that can be later sold to financial entities/investors. These bonds are also called collateralized debt obligations or asset-backed securities.
It is the process of financing the assets into a bond or a security debt that can be sold or traded for a certain sum. The investors who buy them gain the principal and the interest amount.
MBS refers to mortgage-backed security, whereas ABS refers to asset-based security. Mortgage-based security pools in mortgage loans as assets, while asset-based security pools in student loans as assets. These assets are non-mortgagable assets in nature.
Related Terms
- Cost of Equity
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- Interest Coverage Ratio
- Industry Groups
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Disclaimer These commentaries are intended for general circulation and do not have regard to the specific investment objectives, financial situation and particular needs of any person. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person acting based on this information. You should seek advice from a financial adviser regarding the suitability of any investment product(s) mentioned herein, taking into account your specific investment objectives, financial situation or particular needs, before making a commitment to invest in such products. Opinions expressed in these commentaries are subject to change without notice. Investments are subject to investment risks including the possible loss of the principal amount invested. The value of units in any fund and the income from them may fall as well as rise. Past performance figures as well as any projection or forecast used in these commentaries are not necessarily indicative of future or likely performance. Phillip Securities Pte Ltd (PSPL), its directors, connected persons or employees may from time to time have an interest in the financial instruments mentioned in these commentaries. The information contained in these commentaries has been obtained from public sources which PSPL has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the “Research”) contained in these commentaries are based on such information and are expressions of belief only. PSPL has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in these commentaries are subject to change, and PSPL shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will PSPL be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. The companies and their employees mentioned in these commentaries cannot be held liable for any errors, inaccuracies and/or omissions howsoever caused. Any opinion or advice herein is made on a general basis and is subject to change without notice. The information provided in these commentaries may contain optimistic statements regarding future events or future financial performance of countries, markets or companies. You must make your own financial assessment of the relevance, accuracy and adequacy of the information provided in these commentaries. Views and any strategies described in these commentaries may not be suitable for all investors. Opinions expressed herein may differ from the opinions expressed by other units of PSPL or its connected persons and associates. Any reference to or discussion of investment products or commodities in these commentaries is purely for illustrative purposes only and must not be construed as a recommendation, an offer or solicitation for the subscription, purchase or sale of the investment products or commodities mentioned. This advertisement has not been reviewed by the Monetary Authority of Singapore.
Geo Energy Resources Maintains Growth Trajectory Despite Q1 Challenges, S$0.75 Target Price Upheld
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Frequently Asked Questions [market_journal_faq] This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst. Disclaimer These commentaries are intended for general circulation and do not have regard to the specific investment objectives, financial situation and particular needs of any person. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person acting based on this information. You should seek advice from a financial adviser regarding the suitability of any investment product(s) mentioned herein, taking into account your specific investment objectives, financial situation or particular needs, before making a commitment to invest in such products. Opinions expressed in these commentaries are subject to change without notice. Investments are subject to investment risks including the possible loss of the principal amount invested. The value of units in any fund and the income from them may fall as well as rise. Past performance figures as well as any projection or forecast used in these commentaries are not necessarily indicative of future or likely performance. Phillip Securities Pte Ltd (PSPL), its directors, connected persons or employees may from time to time have an interest in the financial instruments mentioned in these commentaries. The information contained in these commentaries has been obtained from public sources which PSPL has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the “Research”) contained in these commentaries are based on such information and are expressions of belief only. PSPL has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in these commentaries are subject to change, and PSPL shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will PSPL be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. The companies and their employees mentioned in these commentaries cannot be held liable for any errors, inaccuracies and/or omissions howsoever caused. Any opinion or advice herein is made on a general basis and is subject to change without notice. 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It is based on a report by a Phillip Securities Research analyst. Disclaimer These commentaries are intended for general circulation and do not have regard to the specific investment objectives, financial situation and particular needs of any person. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person acting based on this information. You should seek advice from a financial adviser regarding the suitability of any investment product(s) mentioned herein, taking into account your specific investment objectives, financial situation or particular needs, before making a commitment to invest in such products. Opinions expressed in these commentaries are subject to change without notice. Investments are subject to investment risks including the possible loss of the principal amount invested. The value of units in any fund and the income from them may fall as well as rise. Past performance figures as well as any projection or forecast used in these commentaries are not necessarily indicative of future or likely performance. Phillip Securities Pte Ltd (PSPL), its directors, connected persons or employees may from time to time have an interest in the financial instruments mentioned in these commentaries. The information contained in these commentaries has been obtained from public sources which PSPL has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the “Research”) contained in these commentaries are based on such information and are expressions of belief only. PSPL has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in these commentaries are subject to change, and PSPL shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will PSPL be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. The companies and their employees mentioned in these commentaries cannot be held liable for any errors, inaccuracies and/or omissions howsoever caused. Any opinion or advice herein is made on a general basis and is subject to change without notice. The information provided in these commentaries may contain optimistic statements regarding future events or future financial performance of countries, markets or companies. You must make your own financial assessment of the relevance, accuracy and adequacy of the information provided in these commentaries. Views and any strategies described in these commentaries may not be suitable for all investors. Opinions expressed herein may differ from the opinions expressed by other units of PSPL or its connected persons and associates. Any reference to or discussion of investment products or commodities in these commentaries is purely for illustrative purposes only and must not be construed as a recommendation, an offer or solicitation for the subscription, purchase or sale of the investment products or commodities mentioned. This advertisement has not been reviewed by the Monetary Authority of Singapore.
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You should seek advice from a financial adviser regarding the suitability of any investment product(s) mentioned herein, taking into account your specific investment objectives, financial situation or particular needs, before making a commitment to invest in such products. Opinions expressed in these commentaries are subject to change without notice. Investments are subject to investment risks including the possible loss of the principal amount invested. The value of units in any fund and the income from them may fall as well as rise. Past performance figures as well as any projection or forecast used in these commentaries are not necessarily indicative of future or likely performance. Phillip Securities Pte Ltd (PSPL), its directors, connected persons or employees may from time to time have an interest in the financial instruments mentioned in these commentaries. The information contained in these commentaries has been obtained from public sources which PSPL has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the “Research”) contained in these commentaries are based on such information and are expressions of belief only. PSPL has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in these commentaries are subject to change, and PSPL shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. 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Company Overview LHN Ltd operates a diversified business portfolio encompassing industrial facilities, facilities management, co-living operations through its Coliwoo brand, and property development. The company has positioned itself as a key player in Singapore's co-living market whilst maintaining traditional property-related revenue streams. Mixed Performance in 1H26 Results LHN Ltd delivered 1H26 results that met expectations, with revenue and adjusted profit after tax and minority interests representing 43% and 49% of full-year forecasts respectively. However, overall revenue declined 14% due to the complete absence of property development revenue during the period. The company maintained its interim dividend at 1 cent, demonstrating its commitment to shareholder returns despite the revenue headwinds. Strong Co-Living Portfolio Expansion The standout performer was Coliwoo, LHN's co-living franchise, which demonstrated impressive growth metrics. The portfolio expanded significantly, with room count increasing 38% year-on-year to 3,568 units. This growth was bolstered by the March opening of Coliwoo Midtown on Middle Road, which contributed 212 rooms and achieved 55% occupancy since launch. The co-living division generated revenue of S$26.9 million, representing a robust 17% year-on-year increase driven by the substantial expansion in room inventory. Demand fundamentals remain exceptionally strong, with average occupancy across the portfolio maintained at an impressive 97% level. The pipeline remains healthy, with another 1,021 rooms scheduled for development, representing a 29% increase to the current portfolio size. Key Positives and Negatives The Positive: Strong growth momentum in the Coliwoo portfolio underpinned performance, with revenue climbing 17% year-on-year to S$26.9 million supported by the 38% jump in room keys. The second half of FY26 is expected to deliver stronger performance as Coliwoo Midtown continues to ramp up occupancy levels. The Negative: Property development operations faced significant challenges, recording zero sales from the 55 Tuas South Avenue 1 project during 1H26. Whilst two units were sold in April, only 9 of the 49 launched units have been sold to date, with the company now considering rental options for the remaining properties. Investment Outlook and Recommendation Phillip Securities Research maintains its BUY recommendation whilst adjusting the target price to S$0.77 from the previous S$0.85, reflecting a decline in Coliwoo's market capitalisation. The valuation methodology applies a 20% discount to mark-to-market valuation due to price volatility, with property development valued at book value and remaining business valued at 10 times price-to-earnings ratio. The company offers an attractive dividend yield of 6.5%, with future growth expected from expanding the co-living franchise into dormitories for the services industry. Frequently Asked Questions [market_journal_faq] This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst. Disclaimer These commentaries are intended for general circulation and do not have regard to the specific investment objectives, financial situation and particular needs of any person. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person acting based on this information. You should seek advice from a financial adviser regarding the suitability of any investment product(s) mentioned herein, taking into account your specific investment objectives, financial situation or particular needs, before making a commitment to invest in such products. 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Nordic Group, a Singapore-based precision engineering company serving the defence, semiconductor, and marine sectors, has demonstrated resilient performance in its first quarter of FY26, with analysts maintaining confidence in its multi-year project upcycle. The company specialises in complex engineering solutions across floating production storage and offloading (FPSO) vessels, semiconductor equipment, and defence applications, positioning itself as a diversified industrial player in high-value segments. Strong Financial Performance Driven by Margin Expansion Nordic Group delivered solid first-quarter results, with profit after tax and minority interests (PATMI) growing 11.1% year-on-year to S$5 million, representing 23% of the full-year FY26 forecast. Notably, this growth was achieved on relatively flat revenue growth of just 0.5% year-on-year, highlighting significant margin expansion. Net profit margin improved by 120 basis points to 12.0%, driven by the company's strategic shift towards higher-complexity projects in the FPSO, semiconductor, and defence segments. Lower finance costs and favourable USD/SGD exchange rate movements provided additional support to profitability during the quarter. Robust Order Book and Strategic Pipeline Development The company's order book expanded to S$213.5 million, representing an 8% year-on-year increase and providing strong earnings visibility through to 2028. The order book comprises maintenance services at S$146.9 million, or 69%, and project services at S$66.6 million, or 31%. Year-to-date contract wins totalled S$54.5 million, with semiconductor projects dominating at 48% of total wins, followed by marine and offshore at 15%. Management expects a medium-sized defence contract valued between S$6 million and S$20 million to be awarded. Nordic Group maintains a well-diversified pipeline across its three core segments, with S$135 million in defence opportunities, S$142 million in semiconductor quotations, including S$55 million categorised as mid-to-high conviction, and S$61 million in marine sector prospects across 152 vessels. Enhanced Financial Position and Growth Investments The company's balance sheet strengthened considerably, with net cash increasing 149% to S$10.2 million in the first quarter. Management has outlined capital allocation priorities, including S$3.6 million to 3.8 million for Thailand manufacturing capacity expansion to scale battery energy storage system (BESS) frame production, dormitory investments, and potential mergers and acquisitions targeting mid-sized companies similar to the Starburst acquisition. Phillip Securities Research maintains a BUY rating with an upgraded target price of S$0.68, increased from the previous S$0.63, reflecting adjusted long-term growth assumptions. The stock trades at 8.4 times FY26 estimated price-to-earnings ratio. Analysts expect continued growth from FPSO deliveries, targeting approximately three deliveries annually, and the mass production ramp-up of battery storage frame components at the Thailand Avitools facility from the second quarter onwards. Frequently Asked Questions [market_journal_faq] This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst. Disclaimer These commentaries are intended for general circulation and do not have regard to the specific investment objectives, financial situation and particular needs of any person. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person acting based on this information. 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SATS Ltd Delivers Strong Growth on Cargo Strength and Contract Wins, Target Price Raised to S$4.52
Company Overview SATS Ltd is a leading aviation services provider operating across gateway services, comprising cargo and ground handling and food solutions, comprising aviation and non-aviation food segments. The company maintains a significant presence across key global markets, including APAC, EMEAA, and the Americas. Strong Operational Performance Drives Results SATS delivered robust fourth-quarter and full-year FY26 results, with 4Q26 revenue and PATMI growing 9.8% and 31.0% year-on-year to S$1.6 billion and S$50.7 million respectively. The full-year FY26 PATMI surged 17% year-on-year to S$285.2 million, representing 100% of forecast expectations. The gateway services segment emerged as the primary growth driver, with revenue expanding 11.5% year-on-year to S$1.3 billion in 4Q26. Within this segment, cargo revenue increased 8.4% to S$809 million, representing 50% of quarterly revenue, whilst ground handling revenue surged 17.3% to S$467 million, accounting for 29% of total revenue. Cargo Volumes and Market Expansion Cargo volumes demonstrated healthy growth of 4.7% year-on-year to 2.35 million tonnes, supported by strong performance in EMEAA markets, up 9.1% year-on-year, and APAC markets, up 9.4% year-on-year. The ground handling segment processed 174,500 flights, representing a 10.6% year-on-year increase. The company's ground handling business particularly benefited from geopolitical developments, with the rerouting of long-haul Asia-Europe flights from the Middle East to Singapore following the US-Iran conflict contributing to the 17.3% revenue growth. Strategic Contract Wins and Geographic Expansion SATS secured significant contract renewals and new business across key geographies during 4Q26, with a particular focus on building operations in the Americas and establishing an integrated cargo network across Europe. The company is also capitalising on rerouted cargo flows from the Middle East conflict, including handling operations for Jazeera Airways at the Dammam base. Outlook and Valuation Phillip Securities Research maintains a BUY rating and has raised the DCF target price to S$4.52 from the previous S$4.44 , with FY27 PATMI estimates increased by 8% to reflecthigher gateway services revenue from new contract wins. The company trades at 18.3 times FY27 estimated price-to-earnings ratio, with expectations for improved margins as new facilities in Tianjin, Bangalore, and Thailand ramp up operations towards management's 20% EBITDA margin target by FY29. 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Company Overview ST Engineering Ltd is a diversified technology and engineering conglomerate operating across three key segments: Commercial Aerospace (CA), Defence & Public Security (DPS), and Urban Solutions & Satcom (USS). The company provides maintenance, repair and overhaul services, manufacturing capabilities, and engineering solutions to both commercial and defence markets globally. Strong First Quarter Performance ST Engineering delivered a solid first quarter performance in FY26, with revenue reaching expectations at 24% of full-year forecasts. Revenue grew 15% year-on-year when excluding the divested LeeBoy operations, demonstrating underlying business strength. The company reported that net profit exceeded 15% year-on-year growth, keeping ST Engineering on track to meet its ambitious 2025-29 target of growing earnings 5 percentage points faster than revenue. Robust Orderbook Growth Driven by Defence Wins The company's orderbook surged approximately 16% year-on-year to S$34.5 billion, with defence operations leading the charge in new contract wins. Two significant orders bolstered the portfolio: a S$470 million contract for Qatar land platform maintenance, repair and overhaul services, and a substantial S$600 million deal to supply eight gunboats for the Kuwait Naval Force. These wins highlight ST Engineering's strong positioning in international defence markets. Commercial Aerospace Segment Shows Positive Momentum The Commercial Aerospace division demonstrated continued strength, with revenue expanding 15% year-on-year to S$1.32 billion in the first quarter. Growth was primarily driven by engine MRO services and increased nacelle deliveries. Extended flight times have increased engine life expectancy, consequently boosting MRO requirements. ST Engineering has strengthened its partnership with engine principal CFM-LEAP in Asia, providing enhanced access to spare parts and technical expertise. Satellite Operations Improving The Satcom division, operating under the Urban Solutions & Satcom segment, showed promising signs with revenue growing 30% year-on-year in the first quarter. This growth stemmed from increased demand in government and defence sectors. Management has identified planned cost savings of S$50 million to transform the division into profitability. Investment Outlook Despite ongoing Middle East conflicts, ST Engineering has experienced no significant project delays or supply chain disruptions. The Middle East can represents less than 3% of total revenue, limiting exposure risks. The company's largest growth opportunity lies in international defence, with US$11 billion in opportunities to pursue over the next two years. Notably, international defence orders secured this year have already doubled those achieved in 2025, demonstrating accelerating momentum in this key growth area. Frequently Asked Questions [market_journal_faq] This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst. Disclaimer These commentaries are intended for general circulation and do not have regard to the specific investment objectives, financial situation and particular needs of any person. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person acting based on this information. You should seek advice from a financial adviser regarding the suitability of any investment product(s) mentioned herein, taking into account your specific investment objectives, financial situation or particular needs, before making a commitment to invest in such products. 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