In his 1995 shareholder’s letter, world-famous Warren Buffett who runs the conglomerate Berkshire Hathaway Inc, mentioned what he looks out for when investing in stocks. He exclaimed the following:
“In business, I look for economic castles protected by unbreachable ‘moats.’”
He went on to explain further in his 2007 shareholder’s letter by saying:
“A truly great business must have an enduring “moat” that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business “castle” that is earning high returns.”
Examples of such businesses with an enduring moat that Warren Buffett invested in include Coca-Cola, American Express and Gillette (now owned by Procter & Gamble).
Here in Singapore, what are some of the listed blue-chip companies that have a wide economic moat? In this week’s edition of 4 Stocks This Week, we look at 4 Singapore companies that can claim to have such economic moats.
DBS Group Holdings Ltd (SGX: D05)
DBS Group Holdings Ltd (SGX: D05) is a well-known bank that doesn’t need much introduction. The company is Singapore’s largest bank and one of the biggest financial services groups in Asia, with over 280 branches across 18 markets.
We still vividly remember when we were in Primary One and our school facilitated the opening of a POSB Savings Account (POSB merged with DBS in 1998) for us and we got free fridge magnets whenever we deposited more than $50 at one go.
Banks, especially DBS, have stickiness in the sense that once consumers open an account and deposit money into them, they will not move funds in and out every other month, unless it’s absolutely necessary. Not forgetting the many GIRO and auto-transactions already set up. It really makes it cumbersome to move from one bank to another.
Turning our attention now to DBS’ financials, over the past five years, its total income has grown 4.6% annually, from S$11.9 billion in 2017 to S$14.3 billion in 2021. Meanwhile, its net profit rose by a faster clip of 11.7%, from S$4.4 billion to S$6.8 billion during the same time frame. With the increase in net profit, shareholders have also been rewarded with higher dividends.
DBS said in its 2021 annual report that going forward, barring unforeseen circumstances, the annualised dividend would be S$1.44 per share.
It said that the higher dividend is in line with its “policy of paying sustainable dividends that grow progressively with earnings”.
The following chart shows how DBS’ dividends have grown since 2020:
Source: DBS 2022 third-quarter earnings presentation
At DBS’ share price of S$34.50, it has a price-to-book (P/B) ratio of 1.6x and a dividend yield of 4.2%.
Raffles Medical Group Ltd (SGX: BSL)
Raffles Medical Group Ltd (SGX: BSL) was established in 1976 and is Singapore’s largest homegrown private healthcare provider. Beyond our shores, the company now has a presence in 14 cities in five countries across Asia, including China, Japan, and Vietnam.
The healthcare outfit is a well-known and trusted brand with many experienced medical professionals under its headcount of over 2,700 employees. It serves over 2 million patients and 7,000 corporate clients each year.
From 2017 to 2021, Raffles Medical’s revenue grew from S$477.6 million to a record S$723.8 million, up 11.0% annually. In 2021 alone, its revenue rose 27.4% as it played a key role in the COVID-19 pandemic, including being Singapore’s leading operator of mass vaccination centres.
Correspondingly, its net profit increased from S$68.7 million to S$83.7 million during the same period, up 5.1% per year. With that, Raffles Medical’s dividend per share grew from 2.25 Singapore cents in 2017 to 2.80 Singapore cents in 2021.
A couple of years ago, Raffles Medical expanded its services in China with the opening of Raffles Hospital Shanghai in July 2021. It also has hospitals in Beijing and Chongqing and they continue to grow steadily. The company has said that “all three hospitals are receiving more local and international patients and we expect continued demand there for our quality healthcare services”.
Recession or not, people need to see a doctor when they are sick so Raffles Medical should continue doing well over the long run, given its strong track record of business execution and brand building.
At Raffles Medical’s share price of S$1.38, it has a price-to-earnings (P/E) ratio of 24.8x and a dividend yield of 1.3%.
Singapore Exchange Ltd (SGX: S68)
If you are reading this article, this means you are likely to be interested in investing in some Singapore-listed companies. And if you want to do that, you have to buy or sell any shares in Singapore on the only stock market operator here, Singapore Exchange Ltd (SGX: S68) (SGX).
On top of providing stock market services, SGX also operates fixed-income, currency and commodity markets. SGX is also Asia’s most international and connected exchange with around 40% of listed companies and over 80% of listed bonds originating outside Singapore.
Here’s a snapshot of the business segments within SGX and the entire value chain they cover:
Source: Singapore Exchange investor presentation
With a strong business, it’s not surprising to see that SGX’s revenue has stepped up consistently over the years.
In FY2018, it posted a revenue of S$845 million, and that has increased by 6.8% annually to S$1.10 billion in FY2022. Likewise, SGX’s net profit has grown from S$363 million to S$456 million during the same time period. The stock exchange pays a yearly dividend of 32 Singapore cents per share, rising from 30 Singapore cents in FY2018.
At a share price of S$9.13, Singapore Exchange has a P/E ratio of 22.3x and a dividend yield of 3.5%.
VICOM Limited (SGX: WJP)
VICOM Limited (SGX: WJP) is Singapore’s largest vehicle inspection company with 35 inspection lanes across seven centres island-wide. If you own a car, chances are that you would have gone to a Vicom centre for an inspection. In 2021, VICOM had a 74.7% market share in the vehicle testing business in our country.
Over the past five years, VICOM’s revenue has been stable at around S$100.9 million. In 2021, its revenue increased by 16.7% from S$86.4 million the previous year, almost back to pre-COVID-19 levels on the back of an improved business environment for its non-vehicle testing business.
However, its net profit fell slightly from S$26.5 million in 2017 to S$24.8 million in 2021, largely due to the pandemic headwinds.
With effect from 1 November 2022, VICOM has increased its car inspection fees by 5% to S$67.41 due to inflation (excluding the 1% GST increase from January 2023). The higher fees should give its business some respite.
At VICOM’s share price of S$1.92, it has a P/E ratio of 26.3x and a dividend yield of 3.4%.
The post 4 Singapore Stocks With Economic Moats: DBS; Raffles Medical; SGX; Viacom appeared first on DollarsAndSense.sg.
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