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Singapore’s Most Efficient Blue Chips

Singapore moneyAs investors, we ideally want to own shares in companies that can generate a decent chunk of profit for every shareholder dollar used in the company. After all, the more profit that the company can wring out the better it should, theoretically, be for those who have a financial stake in the business.

The table below lists five Singapore companies with the highest Return on Equity or ROE. It is a measure of how efficiently a company can convert shareholder dollar into profit.

Company ROE Gearing
StarHub (SGX: CC3) 293% 500%
Singapore Exchange (SGX: S68) 39% 0%
Thai Beverage   Public Co. (SGX:Y92) 35% 91%
Singapore   Technologies Engineering (SGX: S63) 27% 40%
SembCorp Marine (SGX: S51) 21% 15%

Source: Capital IQ.

StarHub, which is Singapore’s second-biggest telecom provider, boasts one of the highest Returns on Equity – an astonishing 293%. It has achieved this by taking on debt rather than raising the working capital it needs by issuing shares. There is nothing intrinsically wrong with using borrowed money but it something to bear in mind as a shareholder given that there is a group of stakeholders in the company who could be more influential than you.

Singapore Exchange’s Return on Equity is impressive given that it has not taken on debt. In other words, SGX has not used financial leverage to help boost shareholder return. Compare that with Thai Beverage, which has increased its net debt burden from S$630m in 2009 to around S$3.7b today to achieve the same level of return.

Elsewhere, Singapore Technologies Engineering and SembCorp Marine have delivered, what most analysts would consider to be, a good Return on Equity. Anything between 15% and 20% would be deemed to be acceptable. In other words the company would be generating between 15 and 20 cents of asset for every dollar invested. What’s more the two companies have not taken on excessive amounts of debt to achieve this.

The efficient use of capital should be an important consideration when investing. However, it is important to bear in mind that taking on debt to improve efficiency can be a double-edged sword. That’s because borrowing money is easy… but at some point the debt will need to be repaid.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.