Decade-Fourbaggers In Singapore

[Kaimin]

Singapore GDP: SGD$447 Billion

I was looking into Singaporean companies that had over the past decade had grown their earnings by a handsome rate of ~15% or more (a fourbagger in a decade). The point of this exercise was to try and find quality growth companies, such as those espoused so much by Fisher and Lynch. By growth companies I mean those with organic growth, i.e. companies that weren't cyclicals or turnarounds. Finding these companies is pretty much the central goal of value investors like us, so it was very troubling when I couldn't find any.

There are companies that have increased earnings fourfold or more. There are companies that have had organic growth. But never together. Companies with such a rise in earnings are always one time or short term events - sudden spikes in commodity prices, divestment gains, a new product that sold incredibly well (a la AEM). We have all seen this. And there are companies with organic growth. Organic growth is a tricky term to define, but I think a pretty good definition is growth that can reasonably be expected to carry into the next five years. That is, the organic growth factors - an enduring cost advantage, an excellent R&D team, a new business model - can be expected to carry into the coming years. But these two qualities never seem to be found in one company here. But why?

First thing everyone is going to say is it's because Singapore has a small economy. This is true. With a GDP of just 447 billion, we can't expect any company to account for more than just 1% of this in revenue, or 4.47B (there are approx 25 companies on the SGX with revenue greater than this). 

The glaring hole in this argument is that any business which does well in Singapore should be able to do well overseas. Many SGX listed stocks are international. Some, like Citic or Keppel Corp, earn almost most of their money from outside of Singapore. This is backed up by the fact that our 4.47B revenue limit is broken by 25 companies, all with significant overseas businesses, and in the case of Wilmar International broken by more than 10 times (60B in revenue). In the US only 6 companies break this 1% of GDP limit, and that's with far more listed companies. True, it's harder to spread internationally. Different regulations, different language, different networks. But this hasn't stopped many listed SGX companies.

The other glaring hole is that any fourbagger just has to have ~1B or less in revenue, or assuming a 10% profit margin , 100M in earnings, to still be a fourbagger. There are plenty of companies that meet these requirements here.

I don't have any answers here, so I'll do a little experiment to see what happens (or doesn't happen) in quantitatively possible decade fourbaggers. I punched in the above requirement into SGX StockFacts, 1 billion in revenue or less (unfortunately SGX StockFacts doesn't have a earnings option). Then I added in a few filters - P/E less than 60, revenue growth of 20% or more in the past 5 years, net profit margin of 10% or greater. Interestingly I only came up with 8 companies. I'll be keeping tabs on them over the next few years and see what happens to each of them. Some companies will undoubtedly drop out of this category, and some will join. We'll see what happens.

Edit: I'd like to thank snowcap for pointing out that Vicom is a fourbagger. SGX was also briefly a fourbagger, but I don't count it here since it isn't organic growth and its subsequent price reflects that.

[TTTI]

Singapore GDP: SGD$447 Billion


I was looking into Singaporean companies that had over the past decade had grown their earnings by a handsome rate of ~15% or more (a fourbagger in a decade). The point of this exercise was to try and find quality growth companies, such as those espoused so much by Fisher and Lynch. By growth companies I mean those with organic growth, i.e. companies that weren't cyclicals or turnarounds. Finding these companies is pretty much the central goal of value investors like us, so it was very troubling when I couldn't find any.

There are companies that have increased earnings fourfold or more. There are companies that have had organic growth. But never together. Companies with such a rise in earnings are always one time or short term events - sudden spikes in commodity prices, divestment gains, a new product that sold incredibly well (a la AEM). We have all seen this. And there are companies with organic growth. Organic growth is a tricky term to define, but I think a pretty good definition is growth that can reasonably be expected to carry into the next five years. That is, the organic growth factors - an enduring cost advantage, an excellent R&D team, a new business model - can be expected to carry into the coming years. But these two qualities never seem to be found in one company here. But why?

First thing everyone is going to say is it's because Singapore has a small economy. This is true. With a GDP of just 447 billion, we can't expect any company to account for more than just 1% of this in revenue, or 4.47B (there are approx 25 companies on the SGX with revenue greater than this). 

The glaring hole in this argument is that any business which does well in Singapore should be able to do well overseas. Many SGX listed stocks are international. Some, like Citic or Keppel Corp, earn almost most of their money from outside of Singapore. This is backed up by the fact that our 4.47B revenue limit is broken by 25 companies, all with significant overseas businesses, and in the case of Wilmar International broken by more than 10 times (60B in revenue). In the US only 6 companies break this 1% of GDP limit, and that's with far more listed companies. True, it's harder to spread internationally. Different regulations, different language, different networks. But this hasn't stopped many listed SGX companies.

The other glaring hole is that any fourbagger just has to have ~1B or less in revenue, or assuming a 10% profit margin , 100M in earnings, to still be a fourbagger. There are plenty of companies that meet these requirements here.

I don't have any answers here, so I'll do a little experiment to see what happens (or doesn't happen) in quantitatively possible decade fourbaggers. I punched in the above requirement into SGX StockFacts, 1 billion in revenue or less (unfortunately SGX StockFacts doesn't have a earnings option). Then I added in a few filters - P/E less than 60, revenue growth of 20% or more in the past 5 years, net profit margin of 10% or greater. Interestingly I only came up with 8 companies. I'll be keeping tabs on them over the next few years and see what happens to each of them. Some companies will undoubtedly drop out of this category, and some will join. We'll see what happens.

Maybe you can key in these same parameters for NYSE and share your findings here with everyone?
I'm sure it'd be dramatically different.

[Kaimin]

Maybe you can key in these same parameters for NYSE and share your findings here with everyone?
I'm sure it'd be dramatically different.

That's a pretty good idea. I keyed into Finviz, with some comparable changes because they offer different filters (e.g. 20% EPS growth over past 5 years instead of revenue). It doesn't have a revenue cap filter, but there are only six companies in the US with revenue greater than 1% of US GDP so it's not so important. There are about 191 results. I couldn't cover them all if I wanted to, so I'll do the next best thing and compare companies found on the SGX list with one from this list in the same comparable industry.

Singapore : US : Industry
AEM Holdings: Daqo New Energy : Semicondutors
Moya Holdings : Mueller Water Products : Water Utilities
SIIC Environment Holdings : Mueller Water Products : Water Utilities
Singapore Medical Group : American Shared Hospital Services : Healthcare

For Best World (beauty product distribution), Ocean Sky (construction), Riverstone (rubber gloves for medical uses) and Vibrant (air freight logistics), I couldn't find comparable companies. Those that I did found might not be exactly comparable (e.g. Mueller Water's description says it deals with fire hydrants, water valves and metering while SIIC deals with water and waste treatment. Still, I think it will be interesting to compare the two. 

The Finviz screener filters for those who are interested: 
https://finviz.com/screener.ashx?v=111&f...,fa_pe_u50

[d.o.g.]

The glaring hole in this argument is that any business which does well in Singapore should be able to do well overseas.

You are making the assumption that the Singapore business environment is similar to the business environment overseas, which is obviously totally untrue.

The 50 states of the US are different, but the language, culture and laws are similar enough. So a company can easily expand from one city into the rest of the state and then nationwide. Ditto China's provinces. Even in Europe each country has some neighbours with similar characteristics. For Singapore, take a look at our neighbours. No chance a standard "Singapore strategy" is going to work when rent, wages etc differ by a factor of 3 or more and the culture and language are totally alien (Thai, Vietnamese, Tagalog, Cambodian et al).

Many SGX listed stocks are international. Some, like Citic or Keppel Corp, earn almost most of their money from outside of Singapore.

Many companies are listed in Singapore but have their businesses largely or totally outside of Singapore. You have to distinguish the location of the listing (a corporate finance decision) from the location of the business (an operational decision). Many of the "large companies" listed in Singapore are in fact not Singapore companies at all, except for the obvious ones in banking, telecom and real estate, which are clearly local businesses which benefit from (and indeed require) economies of scale.

The other glaring hole is that any fourbagger just has to have ~1B or less in revenue, or assuming a 10% profit margin , 100M in earnings, to still be a fourbagger.

What do these criteria have to do with being (or becoming) a fourbagger?

[Kaimin]

The glaring hole in this argument is that any business which does well in Singapore should be able to do well overseas.

You are making the assumption that the Singapore business environment is similar to the business environment overseas, which is obviously totally untrue.

The 50 states of the US are different, but the language, culture and laws are similar enough. So a company can easily expand from one city into the rest of the state and then nationwide. Ditto China's provinces. Even in Europe each country has some neighbours with similar characteristics. For Singapore, take a look at our neighbours. No chance a standard "Singapore strategy" is going to work when rent, wages etc differ by a factor of 3 or more and the culture and language are totally alien (Thai, Vietnamese, Tagalog, Cambodian et al).

Many SGX listed stocks are international. Some, like Citic or Keppel Corp, earn almost most of their money from outside of Singapore.

Many companies are listed in Singapore but have their businesses largely or totally outside of Singapore. You have to distinguish the location of the listing (a corporate finance decision) from the location of the business (an operational decision). Many of the "large companies" listed in Singapore are in fact not Singapore companies at all, except for the obvious ones in banking, telecom and real estate, which are clearly local businesses which benefit from (and indeed require) economies of scale.

The other glaring hole is that any fourbagger just has to have ~1B or less in revenue, or assuming a 10% profit margin , 100M in earnings, to still be a fourbagger.

What do these criteria have to do with being (or becoming) a fourbagger?

>You are making the assumption that the Singapore business environment is similar to the business environment overseas, which is obviously totally untrue.

I don't. Like I said, overseas there are different cultures, laws and languages, which would pose some challenge to doing business there. But the evidence is that many SGX listed companies have overcame this. Just never while achieving a 15%+ growth rate.

>You have to distinguish the location of the listing (a corporate finance decision) from the location of the business (an operational decision).
How would you distinguish a Singapore business that is here for operational reasons? Because it makes most of it's revenues from Singapore, or is headquartered here?

>What do these criteria have to do with being (or becoming) a fourbagger?
Like I said, we can't expect a company to exceed 1% of a country's GDP. There's a limit to how big a business can grow, which I approximately put as 1%. In Singapore just 3% of companies break this limit, and in the US 0.42%.

[Wildreamz]

I posted a similar post a while back, I think it was titled, "Best buy-and-hold Company on the SGX of all time". Didn't get much suggestions. Buy-and-hold seems like a bad strategy in the local market.

Speaking broadly, I believe the lack of hugely successful stories long-term, stems from our history of being a more conservative society that value low-risk moderate return businesses that also returns a significant portion of their free cash flow as predictable dividend stream to shareholders. This expectation takes at least some of the cash away from the business that can otherwise be reinvested. That’s adding to the fact that we are less proactive, and more risk adverse (e.g. adopting new technologies; making changes to proven business model that used to generate profits like clockwork). As a result many of our companies are less nimble, more vulnerable and less competitive.

This weakness is exposed in recent years with the entrance of new competitors, technological disruptions, and shift in consumer habits.

[Kaimin]

I posted a similar post a while back, I think it was titled, "Best buy-and-hold Company on the SGX of all time". Didn't get much suggestions. Buy-and-hold seems like a bad strategy in the local market.

Speaking broadly, I believe the lack of hugely successful stories long-term, stems from our history of being a more conservative society that value low-risk moderate return businesses that also returns a significant portion of their free cash flow as predictable dividend stream to shareholders. This expectation takes at least some of the cash away from the business that can otherwise be reinvested. That’s adding to the fact that we are less proactive, and more risk adverse (e.g. adopting new technologies; making changes to proven business model that used to generate profits like clockwork). As a result many of our companies are less nimble, more vulnerable and less competitive.

This weakness is exposed in recent years with the entrance of new competitors, technological disruptions, and shift in consumer habits.

Do you have any evidence or statistics to back that up?

[Wildreamz]

What I said about Singaporean corporate culture is purely anecdotal. It's my speculation because I couldn't find many good examples of forward thinking, risk taking companies (whose big bets paid off) in the past 10-20 years.

I could list a few negative examples though.

Comfortdelgro (dividend payout ratio >50%): disrupted by ride hailing apps, change in consumer habits , business model basically unchanged in last 10 years (correct me if I'm wrong)
SPH (dividend payout ratio >50%): https://www.drwealth.com/sph-sgxt39-is-this-the-end/
Challenger (dividend payout ratio >50%): top line basically flat-lined since 2014. I suspect the rise of ecommerce like Qoo10, Lazada, Carousell, Shopee, Facebook Marketplace, has something to do with it.
https://www.fool.sg/2018/08/06/challenge...d-quarter/
Singapore Telcos (dividend payout ratio >50%): disrupted by 4th telco, change in consumer habits (cord-cutting)

More anecdotal evidence that Singapore as a country is not forward thinking enough:

https://www.straitstimes.com/business/co...disruption
Preparing for era of disruption
FEB 5, 2018

Much of Singapore's economy and wealth creation is still heavily tied to the well-being of the local real estate sector. Despite its high lifestyle connectivity and tech literacy, the adoption rate of technology remains slow in Singapore.

A case in point is Singapore's mid-single-digit e-commerce penetration rate, which is below the global average (10 per cent) and far lower than China's (18 per cent), according to a Temasek study.

I would love to hear success stories of multi-decade multi-bagger companies from our local bourse too. Any examples of one that has a good track record, and is suitable to buy even today, and hold for the next decade, and have a good shot at returning 2-4x?

[LionFlyer]

I would love to hear success stories of multi-decade multi-bagger companies from our local bourse too. Any examples of one that has a good track record, and is suitable to buy even today, and hold for the next decade, and have a good shot at returning 2-4x?

SGX   1 +dollar in the 2000s, 7 dollars now.

There are examples of multi baggers but whether those multi baggers are sustainable and not a flash in the pan is the issue. 

Where Singapore is weak on are product companies, since our "deep tech" isn't really that deep. If we do get one (aka unicorn), the challenge is always scaling up. That's where they face global competition (and fall) or they are acquired. The other type which I reckon such a multi bagger might come from are services companies that are part of some global supply chain.

[Kaimin]

I would love to hear success stories of multi-decade multi-bagger companies from our local bourse too. Any examples of one that has a good track record, and is suitable to buy even today, and hold for the next decade, and have a good shot at returning 2-4x?

SGX   1 +dollar in the 2000s, 7 dollars now.

There are examples of multi baggers but whether those multi baggers are sustainable and not a flash in the pan is the issue. 

Where Singapore is weak on are product companies, since our "deep tech" isn't really that deep. If we do get one (aka unicorn), the challenge is always scaling up. That's where they face global competition (and fall) or they are acquired. The other type which I reckon such a multi bagger might come from are services companies that are part of some global supply chain.

But at no point around 2000s would you get a seven fold gain. The closest is the lowest point of ~850 in 1998, which would give you a 3.7 fold increase compared to today's STI of ~3500.