Top 8 blue chip stocks in Singapore that you must invest in 2017
Investors in Singapore should be very familiar with the blue chip stocks on the Singapore Stock Exchange, though their high valuations may have put some off investing in them. But the truth is, investors could be well rewarded in the long term through recurring dividends.
Here, we put the spotlight back on our top 8 blue chip stocks that offer sound investment merits and warrants a place in your investment portfolio.
The good thing is, these stocks in our Top 8 list have solid management teams running the business, with long historical track records of profit-making and rewarding investors with through dividends. On top of that, prices for our selected blue chip stocks are currently at undemanding levels and are well poised to capture the economic recovery that is expected to happen this year.
That being said, as with any good principles of investment management, investors should look towards a 5 year or 10 year investment horizon for their investment to bear fruit.
All Singaporeans and foreign investors would be extremely familiar with DBS Bank, the largest bank in Singapore by market capitalization. This banking behemoth has been in existence since the founding of Singapore. Singapore has been plagued by a series of negative economic factors such as the oil and gas sector downturn and China slowdown since 2014 to 2016. However, DBS bank managed to grow its earnings by a CAGR of 1.6% from 2014 to 2016. This is far better compared to the negative earnings growth recorded by UOB and OCBC. Its share price is currently trading at a commendable P/B ratio of 1.1, slightly lower than the other 2 banking giants UOB and OCBC Bank. Its dividend yield stands at approximately 3%, a good annual investment return based on the current low interest rate regime. Its share price has recovered from a low of $14 per share to the current price of $19.60 in the past 1 year. DBS would represent a good proxy to the resilience of Singapore economy to tide through tough economic cycle. DBS has identified its wealth management business unit as a key growth driver and has also big plans to diversify geographical earnings exposure in order to be less reliance on the Singapore market alone for organic growth. The future prospect is definitely encouraging under the CEO Mr Gupta since 2009.
The second stock on the list is Singapore Telecommunications, also commonly known as Singtel, the largest telecommunications company in Singapore. There is intense competition among the telco space in Singapore. Singtel has managed to secure the 700MHz spectrum band which could be beneficial to its bottomline since analyst has projected huge capex savings from its winning bid for the spectrum. Singtel is no slouch as well having recorded a CAGR earnings growth of 1.8% from 2014 to 2016, outperforming Starhub and M1 which both registered negative earnings growth.
The next stock which has excellent investment prospect is Singapore Exchange Limited, the sole stock exchange operator in Singapore. Its heavy investment into growing its derivatives trading volume has started to pay dividends which contributed strongly to its bottomline. 3 year CAGR earnings growth stood at 3%, partly fueled by the increasing trading volume for its China based futures derivatives products. It has also started to re-look into its ailing stock exchange trading volume soliciting public feedback on removing certain trading guidelines and practices such as minimum allocation for retail investors on mainboard IPO. Singapore Exchange is a proxy to the vibrant Singapore financial hub and being a sole operator would ensure years of earnings stability.
Another blue chip stock that warrants investor’s attention is Singapore Airlines, the famed world class national flight carrier that is the pride of every Singaporean. The main investment merit is that the cost dynamics are highly in favour for Singapore airlines as oil price plunged to an absolute low since the multi-year highs is USD140 per barrel to a current price of USD50 per barrel. Its earnings recorded a healthy CAGR of 25% from 2014 to 2016, signaling a bright future prospect. It is also doubling its efforts to compete effectively against low cost carriers by acquiring Tiger Airways and integrating with its existing low cost carrier brand Scoot. It remains the top full service airline brand, being first in Asia and third in global rankings. Its P/E ratio is undemanding, at around 14 times historical earnings.
CapitaLand Limited is another solid stock which should remain in investor’s portfolio in 2017. Property sector in Singapore has undergone a slump for the past 3 years and this has also affected negatively towards Capitaland’s bottomline, having posted a 3 year CAGR growth of -5% from 2014 to 2016. However, based on its recent 1Q 2017 earnings announcement, sales recovery is gaining momentum with a 77.2% profit gain compared to the preceding year. P/E for the stock is only at mid teen levels of 13.7 times historical earnings. Capitaland is a highly diversified Singapore property developer with strong track record and there is increasing bullish catalyst that would propel earnings to new levels. Singapore’s property sector is seeing signs of upswing which is beneficial to Capitaland.
Golden Agri-Resources is another solid blue chip stock specializing in upstream oil palm cultivation and palm oil production. Languishing palm oil prices since end 2014 has put downward pressure on its earnings. However, palm oil prices had since recovered due to the El Nino phenomenon which dry weather has caused palm oil production to shrink. The current favorable palm oil price trend bodes well for Golden Agri Resources. Earnings had since recovered from December 2015 lows of USD10.3 million to USD 399million for year ending December 2016. It is currently trading a very attractive valuation multiple of 8.5 times historical earnings. Palm oil price export growth is on a gradual upward trend and Golden Agri being one of the largest plantations in the world is set to capture this future growth.
Wilmar International is another blue chip commodity giant that investors can invest in 2017. Wilmar’s main business operations include upstream palm oil plantation. It also has significant business investments in downstream palm oil manufacturing as well as trading and processing of other agricultural produce such as sugar. Wilmar’s business fundamentals remain poised to capture ay upside and the downside risks remain low as prices of various commodities has shown signs of bottoming out. Wilmar has a highly diversified earnings base, only suffering a 3% drop in earnings from 2014 to 2016.
Last but not least on the list would be Thai Beverage Public Co., Ltd.. It is Thailand's top alcoholic drinks maker with its Chang beer brand portfolio, well recognized by the beer drinking community. Despite being the fourth largest producer in terms of global sales volume, its share price is valued at a significant discount to global peers. Its P/E is currently at around 21 times historical earnings, and is considered low by taking into account the stable earnings base from its alcoholic beverage segment. Beverage companies are well known for their solid dividend yield and ability to maintain its payout even at recessionary economic conditions. It is currently offering a sweet dividend yield of approximately 3.5% which should provide investors a steady stream of dividend income for the coming years.