Internet of Things & Smart Cities - DBS Research 2015-11-02: Think it, Get it: Services to Eclipse

ST Engineering - DBS Research 2015-11-03: Towards a smarter future ST Engineering SINGAPORE TECH ENGINEERING LTD S63.SI  KEPPEL DC REIT AJBU.SI 

Internet of Things & Smart Cities - Think it, Get it: Services to Eclipse Products 

  • Internet of things (IoT) will revolutionise businesses, like the Internet in the 1990s. Smart city programs will accelerate IoT adoption in Asia. 
  • Service (not hardware) companies will grab over 80% of IoT spending. 
  • Lion’s share of IoT spending will come from businesses with consumers paying < 25%. 

IoT will help product companies to transform into service companies. 

  • The first wave of Information Technology (IT) in the 1960s and 70s automated the value chain of enterprises. The second wave which was the Internet in the 1990s led to global supply chains. The third wave of IoT is creating smart, connected products. 
  • For the very first time, vendors are able to track their products and maintain relationships with customers even after the sale. With IoT, product companies are in a position to launch new services and generate recurring revenue streams. 

Smart cities to accelerate IoT adoption in Asia. 

  • We expect South Korea and Singapore to be among the global leaders in adopting IoT. Singapore is leveraging on its Smart Nation program to resolve challenges in the utilities, transport and healthcare space. 
  • China plans to build 202 smart cities to cope with rapid urbanisation. 
  • In fact, Asian enterprises are ahead of their US peers in IoT adoption. Consumer electronics players like Samsung and LG target for 90% of their products to be IoT- capable by 2017. 

Where to focus in the IoT value chain?

  • IoT services – akin to brain of IoT - will comprise over 80% of revenue. We expect businesses to account for over 75% of spending on IoT services in pursuit of launching new services and reaping savings. 
  • Telcos may see marginal benefits as most IoT data will traverse over Wi-Fi or Bluetooth. Bigger opportunities lie in providing industry specific solutions, cloud Infrastructure and security capabilities. 

Stock picks. 

  • We like ST Engineering for its potential to secure contracts from Smart Nation project. 
  • Keppel DC REIT will benefit from demand for data centers. 
  • ZTE will benefit from smart cities in China. Kingdee will ride on adoption of cloud based ERP solutions while Wasion will benefit from growth of Smart Grid in China.

Highlighted Companies

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