Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on changes – just in case they’re material to our investing thesis. The Straits Times Index (SGX: ^STI) has dipped slightly by 0.1% to 3,303 points today. 13 of its 30 constituents had suffered some losses while 11 other blue chips managed to make some headway. Let’s take a closer look at three market beaters. Singapore Airlines Ltd. (SGX: C6L) has inched up by 0.6% to S$9.86. Singapore’s flagship carrier has been busy setting up a couple of…
Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on changes – just in case they’re material to our investing thesis.
The Straits Times Index (SGX: ^STI) has dipped slightly by 0.1% to 3,303 points today. 13 of its 30 constituents had suffered some losses while 11 other blue chips managed to make some headway.
Let’s take a closer look at three market beaters.
Singapore Airlines Ltd. (SGX: C6L) has inched up by 0.6% to S$9.86. Singapore’s flagship carrier has been busy setting up a couple of alliances lately. Last Thursday, New Zealand’s Minister of Transport had given a thumbs-up to SIA’s proposed alliance with Air New Zealand.
The partnership between SIA and Air New Zealand, which had been announced way back in January this year, would see “increased flight frequency between Singapore and New Zealand and provide other consumer benefits, such as improved connections through reciprocal codeshare ties.”
The next partnership concerns the pair of low-cost carriers, Scoot and Tiger Airways Holdings Limited (SGX: J7X). The former is a wholly-owned subsidiary of SIA while the latter, which underwent a name change to Tigerair recently, is 40% owned by SIA (as of 18 June 2014). The low-cost carriers had announced last Friday that the Competition Commission of Singapore has granted them anti-trust immunity (ATI).
With the ATI, both airlines can now “coordinate schedules and pricing which promises to offer customers a better spread of flight choices, and thus greater flexibility when organising their itineraries.” In particular, Tigerair also stands to benefit with its customers getting “a greater choice of destinations” which are flown by Scoot.
It’s interesting to note that both carriers, despite having an outward similarity in business models, actually operate “highly complementary networks.” Scoot’s focus is medium-long haul flights of four hours or more while Tigerair’s specialty is on short-haul flights.
Given SIA’s business troubles – the airlines’ profit had fallen from S$1.09 billion in the financial year ended 31 March 2011 to just S$273
billion million in the last 12 months – any development which might potentially lead to more customers would likely be great news for its investors.
VICOM Limited’s (SGX: V01) up next with its shares climbing by 2.3% to S$6.80 following the release of its second quarter earnings yesterday evening. For the six months ended 30 June 2014, the vehicle inspection outfit posted a 2.9% increase in revenue to S$54.2 million while profit grew by 6.5% to S$15.2 million.
The company’s not stingy about sharing the spoils with its shareholders given that it had announced an interim dividend of 8.75 Singapore cents. That’s a 9.4% increase over the interim dividend declared a year ago.
Retailer Dairy Farm International Holdings Ltd (SGX: D01) rounds up the trio with its shares gaining 2.3% to US$10.40. The company had just revealed yesterday that it would be acquiring a 20% stake in Yonghui Superstores Co., Ltd for RMB5.69 billion (approximately US$925 million). The deal, which is still subjected to Yonghui’s shareholders’ approval, would see Dairy Farm “have the right to nominate two directors to the board of Yonghui.”
Dairy Farm, which ran 1,020 supermarkets and 151 hypermarkets across Asia as of end 2013, would be buying a stake in a very similar company. The Shanghai-listed and China-based Yonghui operated “288 hypermarkets and supermarkets across 17 provinces [in China]” as of 31 December 2013. According to S&P Capital IQ, the Chinese retailer had earned RMB750 million in profit in the past 12 months, meaning to say Dairy Farm’s effectively paying $38 for every dollar of profit currently earned by Yonghui – that seems to be an expensive valuation at first glance. But given that Yonghui’s revenue had grown explosively by 148% in total over the last three years, the seemingly high price tag might yet turn out to be a fair price to pay over the long term.
In any case, there’s another concern for Dairy Farm’s investors. As of 30 June 2014, the firm had only US$641 million in cash with US$88 million in debt. The company mentioned that “it has the capacity to finance the investment through a combination of existing cash resources and new borrowings,” but investors would have to determine if they’d be comfortable with the additional leverage that the company would very likely have to take on.
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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.