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The Straits Times Index’s Best Performers for the Year

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2013’s coming to a close and so far, the Straits Times Index (SGX: ^STI) has been somewhat of a disappointment, dropping 1.7% to 3,114 points since the end of last year.

That said, since the index is made up of a collection of 30 of the largest publicly-listed companies in Singapore, there’s always a high chance that there’s some big differences in the year-to-date performance of those blue chips. This year is no different.

Jardine Cylce & Carriage (SGX: C07) and City Developments (SGX: C09) have been among some of the worst performers of the year among the STI’s constituents, dropping more than 20% each. On the other hand, we have companies like Thai Beverage (SGX: Y92), DBS Group Holdings (SGX: D05), and ComfortDelGro Corporation (SGX: C52) that have managed to achieve double digit price gains and become the best performers within the index so far.

Company

31 Dec 2012

6 Dec 2013

% Change

Jardine Cycle & Carriage

S$48.15

S$34.42

-28.5%

City Developments

S$12.87

S$9.8

-23.9%

Thai Beverage

S$0.395

S$0.49

24.0%

DBS Group Holdings

S$14.84

S$16.81

13.3%

ComfortDelGro Corporation

S$1.78

S$1.96

10.1%

Straits Times Index

3,167

3,114

-1.7%

Source: S&P Capital IQ

Let’s have a quick recap for the index’s big winners.

1. Thai Beverage

The aptly-named Thailand-based beverage manufacturer’s main business lies in the manufacture, distribution, and sale of spirits, beer, non-alcoholic beverages, and food.

In particular, spirits and beer are by far the most important drivers for the company’s top-line. For example, over the past 3 completed-calendar-years from 2009 to 2012, those two segments were responsible for an average of 61% and 25%, respectively, of the company’s overall sales.

Over the past nine months of 2013, earnings have fallen by half when compared to the previous year, with most of the drop due to an accounting treatment of gains logged for the third quarter of 2012 that arose from the acquisition of F&N earlier this year. If that’s stripped away, earnings for the period would still have dipped by 2.5% year-on-year, with the main driver being a decrease in revenue.

In any case, the market does like what it’s seeing by sending Thai Bev’s shares up 24% year-to-date. But, there might be some dark clouds on the horizon.

In the company’s latest third quarter results, it highlighted a new change in Thailand’s alcohol excise tax which came into effect on 4 Sep 2013. Those changes have increased the excise tax rate for the company’s products.

Back in 2012, the Thai government also enacted a change in the excise taxes for certain categories of alcoholic beverages, but in the company’s earnings release then, it mentioned that it had “passed on the tax increase to its customers directly.” Can it continue doing so?

For the nine months ended 30 Sep 2013, Thai Bev’s overall profit margins (excluding gains related to the purchase of F&N) were actually half a percentage point better than the corresponding period last year, so that’s a good thing. But, investors should watch out for signs of the company’s profit margins getting crimped in the future, if any.

2. DBS Group Holdings

South East Asia’s largest bank by assets had a solid third quarter for 2013 as it delivered a record S$1.41b in net interest income to help bring total income (analogous to ‘sales’ for other non-bank companies) to S$2.15b, some 7% higher over the previous year.

For the nine months ended 30 Sep 2013, DBS’s total income grew 11% year-on-year to S$6.8b as net profits went up 4% to S$2.7b.

According to my colleague David Kuo, banks are “heavily exposed to the wider economy. Consequently, when times are good, they can make extraordinary amounts of money. And they did.

However, when times are bad, they can rack up massive losses because they are heavily exposed to the wider economy. And guess what? They did that in spades too.”

Western banks fared very poorly during the Global Financial Crisis and even though our local banks did suffer profit declines, they pretty much escaped unscathed. A good part of the local banks’ solid showing during the crisis was likely due to their prudence in taking on leverage, which meant that the banks here were facing lower risks as compared to their Western brethren.

Higher leverage can mean fatter profits when times are good, but it’s also a danger that may come home to roost when things sputter and economies around the world go downhill. So, that’s something to keep in mind for investors. On that front, DBS has not been seen increasing its leverage significantly, if at all.

Going forward, investors can also determine how the economy of countries like Singapore, Hong Kong, China, Taiwan, Indonesia and India – key geographical markets for DBS – would fare over the long-term.

3. ComfortDelGro Corporation

The land transportation company has had a pretty decent first nine months of the year. Profits grew by 6% year-on-year to S$203m while its shares, as seen as from the table above, gained 10.1%.

ComfortDelGro operates in six geographical regions, namely Singapore, China, United Kingdom/Ireland, Australia, Vietnam, and Malaysia. Singapore is by far its most important geographical market, accounting for almost 60% of its top-line. UK/Ireland is second, taking up a fifth of the pie, and Australia follows behind with a 15% share of the company’s revenues.

Within its operating segments, ComfortDelGro runs a bus business; taxi business; rail business; bus station business; automotive engineering services business; inspection & testing services business (through its majority-owned subsidiary Vicom (SGX: V01)); car rental and leasing business; and finally, a driving centre business.

Its bus and taxi businesses are its most important segments, together accounting for close to 80% of the company’s overall revenues.

In ComfortDelGro’s latest third quarter earnings release, it warned about cost pressures in its future outlook, so do keep a lookout for slimmer profit margins.

Some basic expectations for revenue trends of its various operating segments within the different geographies were also given. Some highlights include an increase in revenue from the bus and taxi businesses in Singapore. Australia, on the other hand, would see a decrease in revenue from its bus business while maintaining its taxi revenue.

Foolish Bottom Line

So far, Thai Beverage, DBS, and ComfortDelGro have been the top three performers among the blue chips this year. But, can they do so next year? Your guess is as good as mine.

Short-term share price performances are hard to grasp for anyone and perhaps more effort should be placed into understanding what drives revenue and profits for these companies over the long-term in order to sieve out the presence or absence of any lucrative growth potential or dangerous pitfalls.

That in turn, would be the key determinant of their share prices five to 10 years down the road.

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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.