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Top Brands In Singapore Happen To Be Top Companies As Well!

Brand Finance, an independent business valuation and strategy consultancy, released its latest Top 100 Singapore Brands Report 2016 late last month.

Let’s have a tour of the report, given that strong brands can also lead to strong business results and hence, solid stock market returns.

Eight of Brand Finance’s list of the top 10 brands are actually part of the 30 companies that make up the Straits Times Index (SGX: ^STI).

Singapore’s three local banks, namely, DBS Group Holdings Ltd (SGX:D05)Oversea-Chinese Banking Corp Limited (SGXO39), and United Overseas Bank Ltd (SGX:U11), are important constituents of the Straits Times Index and they are deemed by Brand Finance as the three most valuable brands in Singapore in 2016.

DBS takes the top spot with a brand value of US$5.31 billion, followed by OCBC at US$3.29 billion, and UOB at US$2.76 billion.

What really caught my attention in the report is the estimation by Brand Finance on how much each company’s brand contributes to the overall value of the firm. For instance, DBS’s brand value is estimated to be US$5.31 billion while its enterprise value is US$29.8 billion. This indicates that 18% of DBS’s value stems from its brand.

Of the top 10 brands in Singapore, only two brands make up more than 30% of their companies’ overall value: Singapore Airlines Ltd’s (SGX: C6L) brand value is 40% of its enterprise value and the selfsame figure is 32% for Frasers Centrepoint Ltd (SGX: TQ5).

It seems to me that Brand Finance is suggesting that companies such as Singapore Airlines and Frasers Centrepoint derive a huge chunk of their value from their brands and that their actual operating businesses might not be worth that much on a stand-alone basis.

It is a very interesting concept, especially for investors such as myself. We tend to value a company based mostly on its operating business. The idea that the brand of a company can contribute 40% of its value is pretty remarkable.

But, Warren Buffett once said “If you lose money for the firm, I will be understanding. If you lose a shred of reputation, I will be ruthless.” Given that a company’s reputation is strongly linked to its brand, it can be seen just how important and valuable a good brand can be.

Building a strong brand requires time and effort from a company. It’s not easy. But, I hope that Singapore’s businesses would continue to grow their brand values over time. Let’s check back again in 2017.

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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 Stanley Lim owns shares in Frasers Centrepoint.