Top 3 Singapore blue-chip stocks that earned the highest return over the past decade

In our previous article on Singapore blue chip stocks, we covered the pros and cons of investing in Singapore blue chips and a general overview of how they have performed over the past decade.

In this article, we will look at the three best-performing Singapore blue chips over the past decade (2010-2019) and identify the factors for their success.

These are the three best-performing Singapore blue chips over the past decade:

*Based on dividend ex-date between 2 January 2010 to 31 December 2019.
^Exchange rate used: 1 THB = 0.04 SGD.

If you’ve been a long-time investor of Thai Beverage, Mapletree Logistics Trust, or SATS, give yourself a pat on the back! Compared to the Straits Times Index (STI), they all soundly beat the index ETF which only generated a 42% total return over the past ten years.

Let’s have a quick look at what drove business growth and the performance of these three blue-chip stocks over the past decade:

Thai Beverage

ThaiBev is a Thailand-based company that produces and distributes beverages for sale mainly in Thailand and Vietnam. It has four operating segments:

• Beer (45% of total revenue)
• Spirits (43%)
• Non-alcoholic beverages (6%)
• Food (6%)

ThaiBev has relied on the following strategies for growth:

1. ThaiBev has sought to establish itself as the leading regional beverage producer by collaborating with the largest beverage players in local and overseas markets. For example, it acquired significant stakes in Sermsuk, a leading beverage manufacturer and distributor with an extensive distribution network in Thailand (in 2011); F&N, Singapore’s leading beverage producer and distributor (2012); Grand Royal Group, the biggest player in Myanmar’s whisky market (2017); and Sabeco, Vietnam’s biggest beer producer and distributor (2017).

2. ThaiBev has also diversified its revenue streams. In 2008, Thaibev entered the non-alcoholic beverages market with a 43.9% acquisition of Oishi Group, the top green tea beverage producer in Thailand. Oishi Group also owns a chain of Japanese restaurants in Thailand and is publicly listed on the Stock Exchange of Thailand.

3. ThaiBev has undertaken steps to improve its brand equity. It does so through continued product innovation and the introduction of modern packaging for its products. For example, in 2015, as part of Chang Beer’s 20^th anniversary, Thai Bev introduced a new ‘Chang Classic’ look in an emerald green bottle and champagne gold label, which reflects a premium and modern look.

In 2017, Thai Bev also revamped the packaging of the ‘Blend 285’ and ‘Blend 285 Signature’ products in the brown spirits segment. They were enhanced with a glamorous image that featured a capsule cap as its brand identity. This mirrors that of premium international spirits.

Mapletree Logistics Trust

Mapletree Logistics Trust (MLT) is a REIT which owns logistics properties across Asia. MLT has a diversified sector and geographic base, which means it is not over-reliant on a single sector or geography.

Source: MLT’s 4Q & 12M FY19/20 presentation slides

MLT has achieved growth primarily through three channels:

1. Organic growth from its existing portfolio. MLT achieves organic growth by seeking rental escalations. To highlight a few examples:

• Out of the 222,000 square metres of net lettable area due for expiry in FY13/14, 87% was successfully renewed or replaced with an average rental reversion of 17%.
• In FY18/19, leases for approximately 88,503 square metres of MLT’s Hong Kong properties were due for expiry during the year. By year-end, the manager had successfully renewed or replaced over 99% of these at an average positive rental reversion of 5.8%.

MLT has improved its assets’ performance through asset enhancement initiatives:

• In FY13/14, MLT completed its first redevelopment project, the Mapletree Benoi Logistics Hub, a fourfold increase in gross floor area from before redevelopment.
• MLT also divests old, lower-yielding properties. For example, in FY18/19, two low-yielding properties with older warehouse specifications and limited redevelopment potential – 531 Bukit Batok Street 23 and 7 Tai Seng Drive in Singapore – were divested for S$90.4 million during the year. Capital released from the divestments was redeployed into investments of higher quality assets.

2. Yield accretive acquisitions. Yield accretive acquisitions create value for unitholders by increasing the distribution per unit paid to unitholders. This is despite the increase in units which happens when the company takes to the equity markets to raise funds to acquire properties. MLT has made yield-accretive acquisitions over the years:

• In FY14/15, MLT completed the yield-accretive acquisition of six properties in China, Malaysia, South Korea and Singapore for S$209 million with a weighted average occupancy of 99.3% (weighted by net leasable area).
• In FY18/19, MLT completed five yield-accretive acquisitions comprising 19 modern logistics warehouses in China, Singapore, Australia, South Korea, and Vietnam for a combined value of S$1.2 billion. The geographically diversified stable of properties MLT acquired reduces MLT’s dependence on any single market.

3. Prudent capital management. MLT’s leverage ratio has consistently been below 40% at the end of each financial year. This shows MLT’s ability to manage its debt levels properly, giving it sufficient debt headroom to make yield-accretive acquisitions when necessary.

Source: Mapletree Logistics Trust FY18/19 annual report

Over the years, MLT has consistently kept a well-staggered debt maturity profile. This ensures MLT will not be pressured to meet huge financial obligations if a significant portion of its debt expires in a single financial year.

SATS

SATS is a food and logistics company best known for managing most of the ground-handling services and in-flight catering at Singapore’s Changi Airport. SATS has two operating business segments (in brackets are each segment’s percentage of sales revenue in 2019):

• Food solutions (54.1%)
• Gateway services (45.8%)

SATS has relied on the following strategies for growth:

1. To drive growth, SATS has innovated and increased productivity in its food solutions and gateway services segments over the years:

• In food solutions, SATS has continued to transform its inflight catering kitchens by introducing autonomous guided vehicles that transport food items between store and assembly lines, reducing the demands on staff and improving efficiency.
• In its gateway services segment, SATS has partnered with CAAS and the Singapore Aircargo Agents Association to pioneer an initiative to digitise the process of export clearance for airfreight.

2. SATS has also grown in scale by deepening its partnerships in overseas markets:

• For example, in its gateway services, SATS formed a joint venture with AirAsia to handle ground operations. In India, SATS formed a joint venture with Cargo Services Centre to manage an international cargo terminal in Mumbai.
• In its food solutions segment, SATS strengthened its leading position by securing 11 new and returning customers including Air France and Finnair at Changi Airport in FY14/15. It has also added scale to its overall institutional catering business. In 2013, Singapore Sports Hub appointed Sports Catering Services as its exclusive caterer across five of its venues. SCS is a joint venture between SATS and Delaware North Companies, with SATS holding a 70% stake in the partnership.

The fifth perspective

While the STI has displayed rather lacklustre growth (42%) over the past decade, we’ve seen that there are still a handful of Singapore blue chips that have performed remarkably well –ThaiBev’s total return of 341.5% translates to compound annual growth rate of 16.0%.

Dividends also made up a sizable proportion of total return for our top three Singapore blue chips. In the case of Mapletree Logistics Trust and SATS, dividends nearly equalled the stocks’ capital gains over 10 years.

One final note here: past performance is not an indicator of future results. Whether these stocks will continue to perform as well in the new decade remains to be seen. As investors, our role is to do our due diligence and decide if a stock fulfils all our criteria for investment.