Three Shares For Hari Raya Puasa

Hari Raya Puasa, known in Arabic as Eidul Fitri, is a Muslim festival that celebrates the end of the month-long Ramadan.

There are many slight variations of the festival around the world practised by different Muslim communities. It is a reflection of the wonderful cultural diversity amongst the globe’s denizens despite a common thread of giving thanks to their God and the spreading of kindness through charity.

For the Muslim community in Singapore, the celebration involves visiting family and friends in ethnic Malay garb in addition to sumptuous feasting on traditional Malay cuisine.

It’s a festival that the Muslim community in Singapore would likely have been looking forward to as a big celebration after a whole month of fasting during Ramadan.

It’s not always easy to find quoted companies that have close ties to a particular ethnic or religious community. But here in Singapore there are listed companies that happen to be closer to the Muslim community than most.

Second Chance Properties (SGX: 528) started life as a tailor for men’s garments when it was set up by Mohammed Salleh in 1975. Today, Salleh is still the one running the show. He is both chairman and chief executive of the company.

The business has evolved over the years and by 1988, the company had expanded into fashion retailing. But then, Second Chance’s retail-image had become that of a ‘Western’ brand and could no longer resonate with its main clientele, the Malay community.

Thereafter, the company embarked on a major rebranding effort, which resulted in Second Chance being known as a “Malay brand for Malays.”

Today, the company’s deep Malay-roots lie in its First Lady stores that carry Islamic fashion apparel targeted at Malay women.  It brought in more than $29m in sales for 2012.

Second Chance runs a total of 50 First Lady outlets in Singapore and Malaysia, with 47 of the stores in the latter. It has plans to expand its retail footprint to become the biggest retailer of modern Islamic apparel in the region.

Not content with being a one-trick pony, Second Chance is also heavily involved with gold & jewellery retailing that accounted for 32% or $64m of revenues last year. Property rental accounted for 18% of revenues in 2012. That stemmed from its vast network of 62 property units in Singapore and Malaysia.

With a strong history of dividend payout that is north of 3 cents per share since 2008, Second Chance is a company that might catch the eye of income investors.

At its current share price of $0.44, the company has an attractive historical dividend yield of 8.6% based on last year’s payout of 3.8 cents. That’s better than the Straits Times Index’s (SGX: ^STI) dividend yield of 3%.

Sabana REIT (SGX: M1GU) is first and foremost, a Real Estate Investment Trust that owns income-producing properties, similar to all other REITs. But, it is a lot closer to the Muslim community than other REITs stemming from its status as the first Shari’ah compliant REIT in the world.

Shari’ah is the moral code and religious law of the Islamic religion. Sabana REIT’s Shari’ah compliant status would mean that, in addition to abiding to prevailing rules and regulations that governs REITs in Singapore, it would also be managed “in accordance with Shari’ah investment principles and procedures.”

With a portfolio of 21 industrial properties located in Singapore, Sabana REIT has to ensure that not more than 5% of its gross revenue from its portfolio comes from tenants and lessees who are engaged in commercial activities that are not permitted under Shari’ah guidelines.

Some of these non-permissible commercial activities include conventional financial and insurance services, gaming, tobacco-related products and non-halal food production.

As of 31 Dec 2012, Sabana REIT derives only 0.2% of its gross revenue from tenants and lessees engaged in activities that are not allowed by Shari’ah law.

To the REIT’s manager, being Shari’ah compliant confers advantages to it in terms of financing. Conventional REITs are only open to secular funding, while Sabana REIT can not only tap into that but also into the Islamic finance market, which Standard & Poor’s estimated to be worth around US$1.4 trillion in 2011.

The REIT floated on the Mainboard stock exchange on Nov 2010 and has seen its annualised distribution per unit (DPU) increase from 8.67 cents in 2011 to 9.28 cents in 2012. Its latest DPU for the first six months of 2013 stood at 4.81 cents – a 6% increase over last year’s half-year payout.

At Sabana REIT’s current price of $1.13, it would have a forward distribution yield of 8.5% based on the annualised half-year payout of 4.81 cents.

Health care provider Raffles Medical Group (SGX: R01) might not automatically ring a bell for most investors as a Muslim-related company, but it is actually Shari’ah compliant.

That means its shares are available to Shari’ah-compliant investors, who might not be allowed to invest in companies that fall outside the ethical umbrella of Shari’ah law.

RMG runs the eponymous Raffles Hospital in Singapore in addition to various medical centres. It has an international presence as well, with one medical centre in Shanghai and three in Hong Kong.

The company has seen great growth in earnings since 2008, with earnings-per-share growing at a clip of 14.6% per year from 2008 to 2012. Recent second-quarter results from RMG also showed continued momentum in earnings growth as EPS jumped 13.9% year-on-year to 2.63 cents.

Along the way, RMG’s shares have provided a return of 115% for its shareholders from the start of 2008 to $3.22 today. At the current share price, RMG is selling for 29 times current earnings and sports a dividend yield of 1.4% based on last year’s full-year payout.

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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 contributor Chong Ser Jing doesn’t own shares in any companies mentioned.