The Straits Times Index (SGX: ^STI) contains the 30 largest and most liquid companies listed in Singapore. I recently looked through the list of 30 stocks to pick the best three that you can consider for your portfolio for the long-term.
These companies have exhibited credible earnings growth, possess a strong balance sheet and a respectable return on equity (ROE), and have a decent valuation. All three pay a dividend as well. Without further ado, let’s dive right in.
Blue-chip #1: Hongkong Land Holdings Limited (SGX: H78)
Hongkong Land is a property investment, management, and development group with properties in countries such as Hong Kong, Singapore, and China. Currently, the company owns and manages more than 850,000 square metres of real estate across Asia.
Hongkong Land’s net profit has improved from US$1.19 billion in 2013 to US$5.59 billion in 2017, growing at 47.2% annually. Excluding non-trading items such as property revaluations, the company’s underlying earnings per share has increased from around US$0.40 to US$0.412 over the same time frame. The stable underlying performance has allowed Hongkong Land to up its dividend from US$0.18 per share in 2013 to US$0.20 in 2017.
The real estate company’s net asset value per share has climbed by 8.2% annually too, from US$11.41 in 2013 to US$15.63 in 2017.Source: Hongkong Land 2017 annual report
At the end of 2017, Hongkong Land had a net gearing ratio (net debt over equity) of 7%. In its 2017 annual report, the company said that the “[n]et debt is expected to move modestly higher as payments for committed land purchases are funded during 2018.” I think this is nothing to worry about as the company had a high interest cover of 14 times.
Hongkong Land had an ROE of 15.2% in 2017, but if we’re using underlying earnings, its ROE would fall to just 2.6%.
Ben Keswick, the chairman of Hongkong Land, shared some positive comments about the company’s future in its latest earnings update for the first half of 2018:
“The strong performance from the Group’s investment properties is expected to continue in the second half of the year, while the contribution from development properties will benefit from higher sales completions in mainland China.”
At Hongkong Land’s current stock price of US$6.85, the company has a price-to-book ratio of just 0.4, and has a dividend yield of 2.9%.
Blue-chip #2: Venture Corporation Ltd (SGX: V03)
Founded in 1984 and headquartered in Singapore, Venture is a global electronics services provider that can support design, manufacturing, and e-fulfilment for high-mix, high-value, and sophisticated products.
Venture’s earnings have climbed from S$131.1 million in 2013 to S$372.8 million in 2017. The annual net profit growth of 30% in that period came on the back of an increase in revenue from S$2.3 billion to S$4.0 billion.
As of 31 December 2017, Venture had a strong balance sheet with a net cash position of S$721.6 million. It also clocked in a strong ROE of 17.2% for 2017.
As for its outlook, Venture said the following during its 2018 second quarter earnings update:
“While Venture has delivered a creditable 1H 2018 performance, some volatility may arise in the near term from customers’ M&A, new product/platform transitions and also from the possibility of escalation of trade war and component shortages. Venture and its partners have worked out various strategies to mitigate these issues.
Moreover, the Group is well positioned to leverage on its strong Clusters of Excellence, differentiated strategy and diversified competencies to capture new opportunities arising from the changing operating environment. In addition, growth drivers across Venture’s broad-based portfolio of technology domains and strong supply chain management will provide resilience and stability to its long-term performance.”
Venture has a trailing price-to-earnings ratio of 12 and a dividend yield of 4.6% at its current stock price of S$17.45.
Blue-chip #3: Singapore Exchange Limited (SGX: S68)
Singapore Exchange is the only stock market operator in Singapore, and it provides listing, trading, clearing, settlement, depository and data services.
From its fiscal year 2014 to 2018, Singapore Exchange’s revenue has grown from S$686 million to S$845 million, leading to net profit rising from S$320 million to S$363 million. In fiscal year 2018, the company achieved its highest revenue since listing in 2000, and the highest net profit in five years.
At the end of fiscal year 2018, Singapore Exchange had S$831.6 million in cash on the balance sheet with zero debt. It had an ROE of 34%, which is high.
As for its outlook, the company mentioned the following in its fiscal year 2018 results announcement:
“Looking forward, the prospect of escalating trade tensions and moderating global growth may result in higher market volatility, and in turn, greater demand for risk management solutions. We will continue to support our customers in managing their risks across different asset classes through our suite of products, and introduce new derivatives tools such as FlexC FX futures and enhanced Titan OTC Pro platform in the year ahead. Our FX derivatives business continues to grow strongly and now represents 5% of total financials and commodities derivatives gross revenues. We expect this business to contribute positively to net profit in the next few years.
Cementing our position as a multi-asset exchange remains key to our strategy, together with growing our international presence and widening our partnerships and networks. The introduction of new equities products and services, enhancement of SGX Bond Pro, expansion of our steel value chain and development of new data business capabilities, will all play a part towards fulfilling this strategy in FY2019.
We also see an opportunity to develop a digital marketplace in the global freight industry, building on the strengths of Baltic Exchange and our commodity franchise.”
The following chart showcases Singapore Exchange’s vision for its freight-related initiative:Source: Singapore Exchange FY2018 earnings presentation
At Singapore Exchange’s current stock price of S$7.34, the company is trading at a trailing price-to-earnings ratio of 22 and has a dividend yield of 4.1%.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Hongkong Land Holdings Limited and Singapore Exchange Limited. Motley Fool Singapore contributor Sudhan P owns shares in Hongkong Land Holdings Limited and Singapore Exchange Limited.