How 2014 is Shaping Up for the Blue Chips


It’s the start of 2014, and we’ve already seen some of the winners and losers for 2013 among the 30 blue chips that make up Singapore’s stock market barometer, the Straits Times Index (SGX: ^STI).

The winners

Beer brewer and alcoholic beverage distiller Thai Beverage (SGX: Y92) comes up tops with its shares up 36.7%. The next in line are aircraft engineering outfit SIA Engineering Company (SGX: S59) and South East Asia’s largest bank by assets DBS Group Holdings (SGX: D05). Both shares gained similar amounts of 15.3% and 15.2%, respectively, for the whole of last year.

Thai Beverage hasn’t had a good year in terms of corporate performance, as its earnings for the first nine months of 2013 dropped 2.5% year-on-year even after stripping away accounting adjustments related to the acquisition of Fraser & Neave’s (SGX: F99) shares that was concluded earlier this year.

On the other hand, SIA Engineering and DBS Group Holdings had a better time in terms of corporate performance. For the six months ended 30 Sep 2013, the former had seen earnings increase slightly by 2% to S$140m from S$137m in the corresponding period a year ago.

Meanwhile, the latter saw its total income (analogous to revenue for companies in other industries) grow 11% year-on-year to S$6.8b for the first nine months of 2013 as net profits grew 4% to S$2.7b.

The losers

On the other end of the spectrum, the three biggest losers were City Developments (SGX: C09), Jardine Cycle & Carriage (SGX: C07), and CapitaLand (SGX: C31) with losses of 25.4%, 25.3%, and 18.1% respectively.

Jardine Cycle & Carriage’s share price performance likely had much to do with its exposure to the Indonesian economy through its 50% stake in Indonesian conglomerate Astra. Indonesia’s economy saw slowing growth rates (though it must be noted that the country’s economy is still growing) in 2013, which seemed to have spooked the market over Jardine Cycle & Carriage’s shares, since Astra makes up more than 90% of the blue chip’s overall revenues.

City Development and CapitaLand, on the other hand, are real estate plays with significant businesses in Singapore. We’ve seen some heavy property cooling measures here in the past year and that might explain the jitters investors are facing with those two shares.

What happens next?

But, all that’s in the past. The more important question is, what will the various blue chips do, going forward? Some clues could perhaps surface from their respective valuations at the beginning of the year, as investors should take note that starting valuations for any particular investment is a strong make-or-break factor.

Here’s how the 30 blue chips stack up against each other in terms of their price-to-earnings ratio:

Company Price-to-Earnings Ratio
(1 Jan 2014)
(1 Jan 2014)
Hongkong Land Holdings 9.8 US$5.90
Olam International 10 S$1.535
DBS Group Holdings 10.7 S$17.10
Keppel Corporation 11.4 S$11.19
United Overseas Bank 11.4 S$21.24
Wilmar International 12.2 S$3.42
Sembcorp Industries 12.2 S$5.49
City Developments 12.3 S$9.60
Jardine Cycle & Carriage 12.3 S$35.95
CaptiaMall Trust 12.5 S$1.905
Oversea-Chinese Banking Corporation 12.9 S$10.20
CapitaLand 13.3 S$3.03
CapitaMalls Asia 13.4 S$1.96
Singapore Press Holdings 15.4 S$4.12
Global Logistic Properties 16.0 S$2.89
Singapore Telecommunications 16.3 S$3.66
ComfortDelGro Corporation 16.4 S$2.01
SembCorp Marine 17.2 S$4.45
Starhub 19.7 S$4.29
SIA Engineering 20.7 S$5.06
Jardine Matheson Holdings 20.9 US$52.31
Thai Beverage 21.2 S$0.54
Jardine Strategic Holdings 21.5 US$32.00
Singapore Technologies Engineering 21.7 S$3.96
Singapore Exchange 22.0 S$7.26
Hutchison Port Holdings Trust 22.7 US$0.675
Golden Agri-Resources 23.0 S$0.545
Singapore Airlines 24.8 S$10.41
Noble Group 25.9 S$1.07
Genting Singapore 25.9 S$1.495
Straits Times Index 12.5 3,167

Source: S&P Capital IQ; Data for SPDR STI ETF

From the table above, we can see that Hongkong Land, Olam, and DBS are valued the most cheaply by the market while Genting Singapore, Noble Group, and Singapore Airlines are the most expensive.

Foolish Bottom Line

In the past, focusing on cheap stocks within the index’s components has proved more lucrative than piling onto stocks with high valuations. That said, it doesn’t mean that you should rush out to purchase the cheapest blue chips based on the table above; the most the table can do is to give us a helping hand to sift through the shares that might be worthwhile for further research.

In any case, 2014 looks to be an interesting year for the blue chips, especially with the Straits Times Index selling for 12.5 times its trailing earnings, which is somewhat lower than its long-term average-valuation in the high teens.

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