Sing Investments & Finance

[ghchua]

Hi LionFlyer,

All things being equal (opmi unfriendly, conservative family owned businesses), HL Finance gives a better payout ratio, among the peers (SingInv, Singapura, IFS C) and is the largest among the SME finance companies.

I do agree with you that HL Finance has a higher dividend payout ratio than Sing Investments & Finance and they are a bigger outfit. But I dunno whether you have noticed that in terms of earnings growth for the past few years, they have lagged behind Sing Investments & Finance.

What I wish to highlight here is not only about dividend payout ratio, because that point was bought out by CY09. My main point was 11% CAGR over a 10 year period for Sing Investments & Finance was a decent number for a company trading at around 0.5+x book value.

[LionFlyer]

I have not done the research so I defer to your better judgement. 

If the CAGR is growing at such a good pace, is it at the expense of HLF or the other player's market share? My sense is the SME market is been stagnant, and we need to be forward looking to see if it can be sustained. 

I would also look at their NIM because this ultimately drives how much they can payout. 

Anyway, I had a chance to speak with someone from HLF recently due to some business dealings with them. Their board is truly conservative old family. Good welfare for staff though.

[Big Toe]

I generally like Finance Companies. Even though not as professionally managed like DBS, it occupies a niche in SG. Niches are good. I dont expect them to grow very much and is relatively stable. Low/No growth has its plus points. It has been a few decades and no one else seems interested in directly competing with them. They do directly compete with banks for deposits but for lending wise, they do occupy a niche.(ie lending where banks dont find attractive enough)

On the other end of the spectrum we have previously high growth sectors/companies, Tesla, SEA, etc
Sector is growing quickly, competition grows even more quickly making the whole industry not viable. Apple is wise not to join the race to the bottom.

Not vested in Sing Finance but wouldnt mind holding them for the long term/

[weijian]

From chairman's statement in latest annual report:

"DECADE OF SOLID GROWTH
The Group has achieved strong growth over the last decade. Net profit after tax nearly tripled to $33.2 million in 2023 from $11.5 million 10 years ago. We also delivered a stellar 11% compounded annual growth in net profits over the 10-year period. Concurrently, our loan books expanded by 58 % over the same period."

I am just wondering why there are so much negative comments on this family owned business. 11% CAGR over a 10 year period is not a bad number, although if you compared with DBS, then you would be disappointed. 

But would you like to pay 1.5x book value for DBS, or 0.5+x book value for Sing Investments & Finance, bearing in mind that RNAV for Sing Investments & Finance should be higher as their investment properties (including their 17-storey office building at 96 Robinson Road) is carried at cost less depreciation in their balance sheet?

Food for thought.

hi ghchua,

There are recent "negative" comments from only 2 VBs about this company, not really a lot.  Both of us are part of the market and makes up the market, but not THE market.

11% CAGR is really impressive and so I decided to take a look.

PATMI ('000)
2010: 25,407 (Total Asset: 1,545mil, ROA: 1.64)
2011: 23,640 (Total Asset: 1,657mil, ROA: 1.43)
2012: 14,696
2013: 11,463 (Total Asset: 2,071mil, ROA: 0.55)
2014: 12,658 (Total Asset: 2,263mil, ROA: 0.56)
2015: 12,814
2016: 13,868
2017: 22,695 (Total Asset: 2,521mil, ROA: 0.90)
2018: 24,028
2019: 20,018 (Total Asset: 2,915mil, ROA: 0.69)
2020: 19,602
2021: 31,433
2022: 37,203  (Total Asset: 3,109mil, ROA: 1.20)
2023: 33,210  (Total Asset: 3,412mil, ROA: 0.97)

It does seems that Sing Investments cutely selected the trough as the base. Well, I would have done the same thing if my boss asked me to do the "rebranding exercise".  The numbers will probably change a lot if we were to rebase it a few years back.

What if I were to use 2010 (the most convenient since the oldest numbers are 2010, extracted from the oldest AR on SGX, ie. AR14) as the base? Then it would have been
a 30% improvement in PATMI in the last 13years or 2.3% CAGR over the last 13years! Well, I think I would have gotten the sack!

[ghchua]

Hi weijian,

I think if you look at the dividend yield of around 6%pa and those PATMI numbers, would you expect this company to be trading at around 0.5+x book value? I think that was my main point on this topic.

[weijian]

Hi weijian,

I think if you look at the dividend yield of around 6%pa and those PATMI numbers, would you expect this company to be trading at around 0.5+x book value? I think that was my main point on this topic.

hi ghchua,

I haven't looked at the company in detail, so I am not able to give a robust "expectation". Anyways, even if I had an expectation, Mr Market wouldn't care about it. The discount is probably more reality than mirage - Yes, Mr Market is a voting machine in the short run but after some time, many companies are found to be as underweight as they were once voted to be.

But let's say we invert the question - Based on your understanding, what has to happen for the company not to trade at  0.5+x BV and have the discount reduced to 0.8x BV?

[ghchua]

But let's say we invert the question - Based on your understanding, what has to happen for the company not to trade at  0.5+x BV and have the discount reduced to 0.8x BV?

Well, as Third Avenue Asset Management often infer to in their letters to shareholders, there needs to be a "resource conversion" activity.

Hint: Their 17-storey office building at 96 Robinson Road is carried at cost less accumulated depreciation and impairment losses in their balance sheet.

[weijian]

Their payout ratio is lower than the 3 main banks

Indeed, their payout ratio is lower, but not significantly lower than the 3 local banks. They have been paying around 40+% of their profits, as compared to 50% for the banks.

All things being equal (opmi unfriendly, conservative family owned businesses), HL Finance gives a better payout ratio, among the peers (SingInv, Singapura, IFS C) and is the largest among the SME finance companies.

So, it seems that the Chairman has bought up a fundamental truth of financing firms - The issue of scale.

In addition, while banks and financing firms are similarly handicapped by capital adequacy ratios, banks have non-NIM revenue streams to overcome the CAR handicap as ghchua mentioned.

Minutes of the Annual General Meeting of Sing Investments & Finance Limited

Shareholder C noted that some banks are increasing their dividend payment to reduce their excessive capital and cited an example of a local bank which generates higher dividend yields as compared to the Company. The Chairman explained that the scales of banks and the Company are different.

Shareholder B commented that the Company should not be overly concerned with its scale and opined that the Company could do more to attract younger customers. The Chairman responded that the Company had launched digital apps for individual and corporate customers in order to attract and cater to the needs of younger customers. 

The Company had also undertaken a rebranding exercise this year, its 60th anniversary, with a view to attracting younger customers. The Chairman also highlighted that while diversifying its customer base, the Company will always serve and support all customers, including the more elderly who may prefer to visit physical branches.

https://links.sgx.com/FileOpen/SingFinan...eID=803794