Top 8 Blue Chip Stocks to Invest in Singapore 2018
Singapore Stock Exchange currently has a wide selection of high quality blue chip stocks for investment. Blue chip stocks refers to public listed companies which has a large market capitalization and a long operating history as well as long track record of uninterrupted profitability (usually exceeding 20 years) and able to withstand financial shocks and proven long term business fundamentals. Not all blue chip stocks has equal standing in terms of investment attractiveness based on various fundamental investment merits such as dividend yield and growth prospects. The following paragraphs aims to put the spotlight on the top 8 blue chip stocks that portrays sound investment merits that warrants a place in any serious fundamental investors’ stocks portfolio or investment portfolio.
The following table highlights the key picks based on a top down focus of the Singapore and global economy with detailed rationale for the blue chip stock picks for 2018.
Banking sector outlook is forecasted to be rosy throughout the year 2018. More upside is in the cards for local banking stocks, with the main theme being higher net interest income and higher fee based income from wealth management segment. Valuations for local banking stocks have further upside due to its below par 1.4 price to book ratio, a notch lower than regional banks which are enjoying 1.6 times P/B ratio. The worst within the oil and gas sector downturn is now a thing of the past and banks are sailing through steady waters with the sector stabilizing.
DBS bank sits atop the banking pack and remains a solid blue chip buy that investors can add to their investment portfolio. One key investment merit for favouring DBS bank is its lean cost to income ratio. Interest margins are expected to climb on the back of two major tailwinds namely stabilization of oil and gas sector and rising interest rates. Net interest margins rose by 7 basis points and loan growth is expected to increase by at least 7% for 2018. Final dividend rates were raised and special dividend was announced. Investors can look forward to higher earnings and potentially higher dividends which at current levels are still attractive giving and effective yield of 3.21% per annum.
OCBC bank is another top banking sector pick with aggressive acquisition plans to beef up its wealth management department. November 2017 saw the completion of acquiring National Australia Bank’s private wealth department. 2017 results were impressive where net interest income grew 14% and total net profit grew 19%. Dividends were raised in view of excess capital and much improved financial performance. Moving forward to 2018, net interest margins would continue to expand with expected faster pace of interest rate hikes. OCBC’s oil and gas loan book has been well contained and the sector may have bottomed out.
Property sector has bottomed out locally since 2017 where private home prices rose 1.7%. Property sector remained bullish after 3 years of stagnation since property tightening measure began in 2014 and the most recent budget announcement of stamp duty hike on premium residential properties above SGD1million would only have little marginal adverse impact on potential sales as a result of higher effective purchase price.
CapitaLand Limited is another solid stock which should be a buy by investors in 2018. 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 full year 2017 earnings announcement, operating performance is gaining momentum with a 30% net earnings gain compared to the preceding year. P/E for the stock is only at low teen levels of 10.6 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. The latest moves of its China malls divestment and acquisition of Pearl Bank apartments in Chinatown in particular bodes well for future development earnings a sign of residential property market gaining momentum.
Another strong blue chip property developer to ride on the positive property trend is City Development Limited, with major analysts sounding a buy for the stock. It is actively bidding for new sites to replenish its development landbank, having recently won 2 out of 3 open tenders. With new landbanks and multiple residential projects to take advantage of increased optimism in local property sector, CDL is poised to outperform for the coming years. 2017 results saw net profit dropping 15% while revenue rose significantly by 18%, but rewarded shareholders with a special dividend of 4 cents per share. Its war chest has been put to good use by winning land bids and CDL is in good shape to acquire income accretive assets while delivering solid residential development projects for buyers.
UOL Group Limited, a well-known Singapore property developer as well is poised to outperform its peers with the recovery of property sector underway. Its net profit as at Q3 2017 rose 8%, with growth coming from its 2 biggest earnings driver, namely property development and property investments. A slew of property development projects are underway which will keep the Group busy for years namely joint venture residential development at Meyer Road, The Clement Canopy and Principal Garden. A rising property sentiment may boost sales further as currently the take up rate is less than 100%. Its commercial properties portfolio contributed significantly as well to the profit growth.
Consumer sector is making a comeback with 2017 charting higher household income, delay of GST hike from 7% to 9% as per the recent Budget 2018 announcement and a recovering labour market. The special cash bonus announcement which will be distributed will be a boon to consumer sector as well. Tourist arrivals were strong in 2017, charting 2 consecutive years of growth for Singapore.
Genting Singapore could potentially benefit from the positive consumer sentiment with a slew of consumer spending friendly budget 2018 announcement. Net profit for the full year 2017 came in at 100% higher compared to 2016, and shareholders are rewarded in the form of higher dividend payout. Asian gaming and tourism industry saw a rebound in 2017 and Genting Singapore’s potential earnings growth could be realized from its Japan gaming license bidding. Its major attractions such as Universal Studios and hotel occupancies all charted strong traffic and its VIP gaming business segment posted sustainable recovery. Investors may accumulate Genting Singapore stock for 2018 as the economy trend up.
SATS would also be a potential beneficiary of influx of tourists and positive consumer sentiment. For the quarter ended 31 December 2017, EPS came in higher at 5.9 cents compared to 5.8 cents. Long term prospects for SATS remain favourable with the latest Turkish Airlines partnership for in-flight catering service and rising on Changi Airport Terminal air traffic growth. SATS is constantly looking to reduce operating costs by increasing efficiency and the twin boosters could power its earnings forward.
Consumer electronics segment have been seeing good global demand as well. Once such stock to ride the positive trend is Venture Corporation, where profits are forecasted to surpass all analyst estimates in 2018. Production capacity for the company is expected to be ramped up to the maximum and dividend yield based on historical earnings is projected to rise as well. Global consumers disposable income is on an uptrend since the great financial crisis and Venture Corporation is well positioned to meet increasing demand for latest electronics gadget that improves efficiency.
Investors could be well rewarded in the long term by investing in the above blue chip stocks. The main bulk of profit yield come in the form of recurring uninterrupted dividends but underlying profit growth plays a much more important role as well where blue chip stock are known for their stability. They all have solid management teams running businesses with long operating track records of profitability and rewarding investors with generous dividends over the many years of its listing history. Prices for these blue chip stocks are undemanding as well and they are well poised to capture the continued economic expansion. As with any good principles of investment management, investors should look towards a 5 year or 10 year investment horizon for investment results to bear fruits for future harvest.