World-renowned investor, Warren Buffett, likes to invest in companies with a wide economic moat. The presence of an economic moat in a company’s business acts as a powerful deterrent to would-be competitors who are considering encroaching the territory of the business. Examples are abound of Buffett investing in companies with sticky consumers, ensuring even more profits are produced by the firms when consumers come back for more.
In Singapore’s stock market, there are also companies with wide economic moats. Let’s look at three such companies that are part of the Straits Times Index (SGX: ^STI), and hence, are also known colloquially as blue-chip shares.
The first company on the list is Singapore Exchange Limited (SGX: S68), or SGX in short. SGX is the only stock market operator in Singapore and probably has the widest economic moat among all the blue-chip shares. I believe Singapore is just too small to have another significant competitor to the company.
SGX possesses a high net profit margin as well as return on equity (ROE). For its fiscal year ended 30 June 2018, it had a net profit margin of 42.4% and an ROE of 34.1%. Both figures are much higher than what most companies in the local stock market produce.
DBS Group Holdings Ltd (SGX: D05), which is the largest bank in Singapore, is the next company on the list. Beyond Singapore, the bank also has operations in Hong Kong, China, Taiwan, India, and Indonesia.
Being the largest bank in Singapore, DBS attracts many savers with its vast network of bank branches and cash machines. The bank’s depositors are also sticky; once someone opens a bank account with DBS and deposits money in it, he or she is unlikely to move funds in and out frequently, unless there is a convincing reason to do so. Having a predictable pool of capital from depositors contributes to the stability of the bank.
Last but not the least, there is SATS Ltd (SGX: S58), which has a majority market share in-flight catering and ground-handling services at Singapore’s Changi Airport.
The company also has a large network of joint ventures and strategic alliances — in similar lines of businesses as what it does — in many countries. SATS is now present in over 60 locations and 13 countries across Asia and the Middle East. This massive network and SATS’s presence in many key airports bring about high barriers to entry for new entrants.
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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 DBS Group Holdings Ltd, Singapore Exchange Limited and SATS Ltd. Motley Fool Singapore contributor Sudhan P owns shares in Singapore Exchange Limited and SATS Ltd.