Fishing for Opportunities in Singapore’s Consumer Discretionary Companies

There are wants and then there are needs.

Consumer staples are the things we need for our day-to-day life. Some examples include essentials like food and beverages. Consumer discretionary products, on the other hand, are products which are not considered as needs. Examples here would include automobiles, fashion apparel, jewellery, and the like. Singapore’s stock market has a good number of companies from both ends of the consumer spectrum.

According to a recent report from bourse operator Singapore Exchange Limited (SGX: S68), there are 167 consumer companies listed locally. From this figure, 54 companies have market capitalisations of above S$200 million. Within the 54 companies are 33 which belong to the consumer discretionary sector.

Here are four useful observations from the report on the group of 33 consumer discretionary companies (data as of 30 March 2016, unless otherwise stated):

  1. The trio of Singapore Press Holdings Limited  (SGX: T39), Jardine Cycle & Carriage Ltd  (SGX: C07), and Genting Singapore PLC  (SGX: G13) happen to be component stocks of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).
  2. On average, the consumer discretionary companies had higher valuations than the SPDR STI ETF (SGX: ES3), an exchange traded fund that mimics the fundamentals of the Straits Times Index. As of 1 April 2016, the SPDR STI ETF had a price-to-earnings (PE) ratio of 11.5 and a price-to-book ratio (PB) of under 1.2. In contrast, the consumer discretionary basket had an average PE ratio of 26.1 and an average PB ratio of 1.9.
  3. But, there could be a bargain or two in the making when we look closer. Hour Glass Ltd (SGX: AGS) had a PE ratio of just 9. The luxury watch retailer had also clocked in total returns of over 30% in the past three years. Meanwhile, tourism asset owner Straco Corporation Ltd (SGX: S85) traded at a PE ratio of 13.3 and had logged in healthy returns of 172% in the same period seen with Hour Glass. Elsewhere, precision machine parts manufacturer Innovalues Limited (SGX: 591) had chalked up stunning total returns of 972% over the past three years. Investors might want to take a closer look at the company to see if the rise is justified.
  4. Shares of Genting Singapore had fallen over 40% over the past three years. A fall in the price of a stock alone does not tell you whether it is cheap or expensive. Instead, investors might want to look at the performance of the underlying business to decide whether the falls are justified or not.

Looking back helps us understand how the various consumer discretionary companies had fared over the past few years and gives us a clue on which company might be worth following. This may give us a head-start on our investing homework that follows.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.