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4 Solid Companies With High Net Profit Margins

Of the many screening tools and metrics investors can use to find great investments, an important one is net profit margin. Gross profit margin, which measures pricing power, is useful, but net profit margin accounts for the expenses within the business, and it also lets investors know how efficient the company is at converting revenue into profits. Businesses with high net profit margins also have more wiggle room in case the business environment deteriorates, or if competition becomes stronger.

Here are four solid companies with high net profit margins.

No. 1: Singapore O&G Ltd

Singapore O&G Ltd (SGX: 1D8) is a leading group of specialist medical practitioners who focus on women and children’s health and wellness. The group has four operating segments: obstetrics and gynaecology (O&G), cancer-related, dermatology, and paediatrics, along with 15 specialist doctors.

SOG had a net profit margin of 24.0% in its latest Q1 2019 earnings report, though profit declined by 15.5% year on year due to higher costs.

No. 2: Straco Corporation Limited

Straco Corporation Limited (SGX: S85) is a tourism asset operator that owns two aquarium assets in Shanghai and Xiamen, China, as well as 90% of the Singapore Flyer, located in Singapore. The group also owns the Lixing Cable Car attraction in Xi’An and the Chao Yuan Ge attraction, which is under development.

Straco reported an impressive net profit margin of 34.6% in its latest quarterly earnings report and also enjoyed a 139.3% year-on-year gain in net profit. But investors should note that for Q1 2018, the Singapore Flyer was hit with around two months of downtime due to a technical issue, which depressed net profit for that quarter.

No. 3: HRNetGroup Ltd

HRNetGroup Ltd (SGX: CHZ) is a human resource recruitment and talent acquisition company with operations in 13 cities in Asia. The group has two main divisions — professional recruitment and flexible staffing — and it serves clients in over 30 diversified sectors ranging from financial institutions to insurance and logistics.

HRNetGroup’s net profit margin stood at 18.6% for Q1 2019, but a fair value gain on investments boosted this number. Adjusted for this gain, the net profit margin is still a respectable 13.6%, which is high if you consider that the group has been in expansion mode and is still growing aggressively by establishing its presence in even more cities in the last 18 months.

No. 4: Singapore Exchange Limited

Singapore Exchange Limited (SGX: S68), or SGX, is Singapore’s only stock exchange, offering a platform for investors to buy and sell equities, fixed-income securities, and derivative products.

For its FY 2019 earnings (the group has a 30 June year-end), SGX reported a net profit margin of 43.0%. Profit after tax increased by 7.7% year on year to hit an 11-year high.

A common trait

Investors may notice a common trait amongst the four companies mentioned above. These companies all provide services rather than products, and they do not have the hassle of managing inventory. Singapore O&G provides medical services, Straco owns assets and charges visitors a fee for visiting them, HRNetGroup provides a service for companies by identifying suitable candidates for staffing purposes, and SGX provides a financial platform to facilitate secure transactions between buyers and sellers.

This common factor will come in handy should investors wish to hunt around for more companies with high net profit margins. Services companies have a tendency to report high margins compared to those that handle products, warehousing, and logistics (for example, manufacturing and distribution companies). High net profit margins provide the company with a strong buffer during tough economic conditions and enable it to weather such storms better.

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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has recommended shares of Singapore O&G Ltd, Straco Corporation Limited, HRNetGroup Ltd, and Singapore Exchange Limited. Motley Fool Singapore contributor Royston Yang owns shares in Straco Corporation Limited and Singapore Exchange Limited.