It Never Rains but it Singapores
Peter is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With all of the uncertainty emanating from the U.S. and Europe over their budgetary and fiscal crises that seem to go on without end, it has become a convenient but not really popular investment thesis to say that capital is moving East and that’s where you should put your money. But, while that statement makes some sense, and being here in Southeast Asia, I was one of the very early adopters of this thesis beyond the China, Taiwan, Korea triangle, it is another thing to feel comfortable with the investment itself at a fundamental level.
In other words, just because Southeast Asia may be the place where capital is fleeing does not automatically mean that every company in this part of the world is going to make oodles of money. It is simply not true. So, while the savvy investor may want to invest in this part of the world there are a number of barriers to his doing so. I’m going to take some time here to look at a trio of companies important to the growth and potential success of Singapore which are featured in the iShares MSCI Singapore Index ETF (NYSEMKT: EWS).
The fund tracks the MSCI Singapore Index which trades differently than the FTSE Straits Times Index which is essentially a list of the top 30 by market cap on the SGX (Singapore Exchange), which stood at the end of April at $822 billion USD. In the past three years EWS has outperformed The STI by more than three times, 109% vs. 29%.
Singapore Telecom (NASDAQOTH: SGAPY.PK): The largest company on the SGX, SingTel is the largest telecommunications company in the region with more than 450 million mobile customers with a current market cap of $41 billion. SingTel trades at a 2012 year end multiple of 13.2 with a 4.9% dividend yield. They own or have major stakes in local mobile companies in Indonesia, India, Thailand, Pakistan and the Philippines. They also own Australia’s 2nd largest telco company, Optus. Recent moves have been to begin the 4G wireless rollout in Singapore, along with acquiring Amobee and Adjitsu, U.S. mobile advertising platform startups to build out their mobile revenue streams. Current bottom line growth has been muted due to Bharti Airtel’s underperformance after their expanding into Africa. Singtel is EWS’s largest holding at more than 11% of AUM.
DBS Group Holdings (NASDAQOTH: DBSDY.PK): DBS Group is a major financial services and banking conglomerate that used to be known as the Development Bank of Singapore. They have seen 9 straight quarters of top line and bottom line growth across nearly every sector of their business with a NPL ratio of just 1.3% that has seen flat to negative growth. They are very well capitalized and just announced a tripling of their U.S. Dollar denominated commercial paper program from $5 to $15 billion and S&P affirmed a AA rating on it immediately. Their operations in China rose in 2011 with net profit doubling to $500 million. Q1 2012 blew away estimates with net profit coming in at S$933 million versus S$700 million. Their proposed acquisition of Indonesia’s Danamon for $7.2 billion is meeting with skepticism and resistance by the Bank of Indonesia, but their business in Indonesia grew at a 33% rate year-over-year and DBS is looking there as the next stage for massive growth in ASEAN. DBS is 2nd to SingTel in allocation in EWS at 10.9% of AUM. DBS is 1.3% of the iShares MSCI Pacific ex-Japan ETF (NYSEMKT: EPP) for those wanting broader exposure and a stronger yield, 4.5%
Keppel Corp (NASDAQOTH: KPELY.PK): Keppel is the largest builder of offshore oil rigs in the world. With a market cap of $14.5 billion, Keppel is a conglomerate who has its hands in a number of infrastructure areas including land development, power generation and engineering. 2011 saw a 14% increase in revenue and a 7.5% increase in bottom line earnings. Margins improved from 16.5% to 18.3% Despite a 25% fall in the price of oil in the past 3 months, Keppel’s order book for new offshore rigs is very strong. Short-term fluctuations in the price of oil do not mitigate the long term structural problem in the energy markets. Until such time that the world figures out a way around liquid fuels, Keppel’s core business will be in high demand. Their land division has been very successful in spinning out their office building projects into their REIT, K-REIT which has assets worth $6 billion US and is paying a 4.6% dividend while Keppel is currently trading at 11x forward earnings yielding 4% after a 2011 which saw margins rise in their core business. Keppel makes up 6.8% of AUM of EWS and is also well represented in the Global X FTSE ASEAN ETF at 3.3%
These brief introductions are just that, introductions to put names and numbers to the monolith that is Asia. I’ll continue to profile a the major stocks in Singapore to complete the picture.
PeterPham8 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.