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Local investors will likely be familiar with the three major banks listed in Singapore: DBS Group Holdings Ltd (SGX: D05), United Overseas Bank Ltd (SGX: U11), or UOB, and Oversea-Chinese Banking Corp. Limited (SGX: O39), or OCBC.

How cheap are our local bank stocks compared to their peers in the US?

Are you overpaying?

The price-to-book ratio tells us how much we are paying for every dollar of equity on a company’s books. The ratio is especially useful for stocks that have largely tangible assets, which is the case for most banks.

The table below shows the price-to-book ratio of the big three banks in Singapore against a selection of three of the largest US-listed banks.

Source: Author’s compilation of data from Morningstar

The price-to-book ratios between the six banks are fairly close. Bank of America and Citigroup sport lower price-to-book ratios than the trio of Singapore banks. However, the price-to-book ratio comparison would not be complete without assessing how efficient the banks are in using its equity to generate a profit, which brings us to the next point.

The most efficient generators of profit?

The return on equity is calculated by dividing net income by shareholder equity. A company with a higher return on equity will naturally command a higher price-to-book ratio.

Source: Author’s compilation of data from Morningstar

JPMorgan Chase has the highest return on equity among all six banks. It has also historically surpassed analysts’ expectations, which could be the reason for its higher price-to-book ratio. In the quarter ended 30 June 2019, JP Morgan generated a return on equity of 16%, an improvement from last year. As the biggest bank in America, in terms of market cap, JPMorgan has a large war chest to invest in technology and customer acquisitions, which could help it maintain its market-leading return on equity.

DBS is the most second-most efficient bank on this list. The bank has been transforming itself digitally, focusing on its fee business and has also returned excess capital back to shareholders through higher dividends in the last couple of years. These initiatives have improved its return on equity to 12.1%, higher than the other two local banks.

How cheap are banks in relation to earnings?

Another useful valuation metric is the trailing price-to-earnings ratio. This ratio tells us how much we are paying for every dollar the bank earned over the last 12 months. The lower the ratio, the cheaper the stock is relative to its trailing earnings.

Source: Author’s compilation of data from Morningstar

Both sets of banks have exactly the same average price-to-earnings multiples. JPMorgan, with its relatively higher return on equity and historical track record of beating expectations, has understandably the highest price-to-earnings multiple among the six. 

In Singapore, DBS sports the highest price-to-earnings multiple. Investors may be willing to pay a higher price for the company due to its higher dividend payout policy and consistent growth in the past few years.

The Foolish conclusion

From the comparisons above, it seems that Singapore banks are reasonably priced when compared to this particular selection of US-listed banks. Based on the metrics use above, neither group seems cheaper than the other.

However, local investors may want to note that dividends from US-listed stocks are taxed at 30%, which will eat into your investment returns. Taking the tax into consideration and based on the similar valuations of both sets of banks, I would ultimately prefer putting my money in the local banks, where I can enjoy tax-free dividends.

Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has recommended shares of DBS Group Holdings Ltd. Motley Fool Singapore contributor Jeremy Chia owns shares in DBS Group Holdings Ltd.

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Suntec REIT (SGX: T82U) is a REIT that owns commercial and retail properties in both Singapore and Australia. Its portfolio contains Suntec City (one of Singapore’s largest integrated developments), and it is also a part-owner of Suntec Singapore Convention & Exhibition Centre, One Raffles Quay, and Marina Bay Financial Centre Towers 1 and 2. In Australia, Suntec owns a commercial building in Sydney as well as a 50% interest in two properties in Melbourne.

On Monday, the REIT announced its second acquisition in Australia within the same month, that of 55 Currie Street in Adelaide, South Australia. Its previous acquisition of 21 Harris Street was attractive as it provided strong net property income (NPI) yield of 5.5%, but the current acquisition hits the ball right out of the park with a much higher NPI yield of 8%. Most importantly for investors, this new acquisition will help to boost distribution per unit (DPU) even further.

Here are some salient details of the new property Suntec is acquiring:

  1. Suntec is paying 148.3 million Australian dollars for a 100% interest in the property, which is a freehold Grade A office building. The property has approximately 282,000 square feet of net lettable area.
  2. 55 Currie Street has an initial NPI yield of 8%, which is much higher than the 5.5% offered by 21 Harris Street. The property enjoys 91.6% committed occupancy (with major tenants such as the South Australian Government, Allianz, and Data Action) and the vendor has also provided a 27-month rent guarantee for any vacant spaces.
  3. Weighted average lease expiry (WALE) for the property is 4.4 years, and the tenancy agreements come with annual rent escalations of 3.5% to 3.75%. The acquisition is expected to be completed by the end of August 2019.
Deepening its presence in Australia

With this acquisition, Suntec continues to build up its presence in Australia. The acquisition of 21 Harris Street bumped up the Australia portion of the assets under management (AUM) to 14% of the total portfolio, while 55 Currie Street increases this further to 17%. Australia now contributes nearly one quarter (about 23%) of rental income to the REIT.

Further DPU accretion

Unitholders should cheer the latest acquisition as it will help boost DPU by another 0.79%. Recall that the acquisition of 21 Harris Street already projected a DPU increase of 0.49%. If we take Suntec’s full-year 2018 DPU of 9.988 Singapore cents as a reference base, both acquisitions will increase full-year DPU to around 10.12 Singapore cents moving forward. Based on Suntec’s last traded price of S$1.94, this translates to a forward dividend yield of around 5.2%.

The Foolish bottom line

Suntec is offering steady DPU growth as a result of management’s opportunistic acquisitions in Australia. The REIT’s dividend yield of 5.2% compares favourably to CapitaLand Commercial Trust (SGX: C61U), which has a forward dividend yield of just 4.1%. Investors can look forward to more such acquisitions as Suntec has an excellent track record of acquiring quality assets with high NPI yields.

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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Royston Yang owns shares in Suntec REIT.

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It has been 10 long years since the Great Recession of 2008-2009, and the world has seen an extended era of low-interest rates and steady, consistent growth. However, of late, there have been rumblings of an impending global slowdown, and these fears have been exacerbated by the US-China trade war. Many economists are also warning of danger signs in the bond market, and a few have even gone so far as to predict a recession in 2020.

Naturally, this is worrisome for investors because a recession will affect the value of their investments, and it may also crimp the level of dividends they are receiving. One recommendation I have is to purchase strong, well-run companies that are resilient to economic shocks. Such companies are usually found in anti-cyclical industries, meaning they do not follow the usual ebb and flow of demand that hinges on the strength of the economy.

Here are two companies to consider owning if you are worried about an impending downturn.

1. Riverstone Holdings Limited

Riverstone Holdings Limited (SGX: AP4) is a manufacturer of nitrile and natural rubber cleanroom gloves used in the electronics and semiconductor industries, as well as premium nitrile gloves for the healthcare industry. The group has six manufacturing facilities located in Malaysia (4), Thailand (1), and China (1), it employs more than 3,000 people, and it has an annual production capacity of 9 billion gloves as of 31 December 2018.

Riverstone’s nitrile gloves are sold to healthcare institutions all over the world, and they provide essential consumables for this industry to survive. The healthcare industry is known to be resilient to economic downturns, and Riverstone should, therefore, enjoy consistent demand through all economic cycles.

Revenue has been growing by 14.6% year on year, as reported in its first-quarter 2019 earnings, while earnings were flat due to higher expenses. Phase 6 expansion plans are on track for the group to raise its capacity to 10.4 billion gloves per year by the end of 2019. The group pays dividends twice yearly (5.45 Malaysia sen final and 1.3 Malaysian sen interim) for a total of 6.75 Malaysia sen, which translates to roughly around 2.2 Singapore cents. The historical dividend yield is therefore around 2.4% at the last traded price of S$0.92.

2. Mindchamps Preschool Ltd

Mindchamps Preschool Ltd (SGX: CNE) owns premium range preschools in Singapore and holds the No. 1 position with a market share of 38.5%. The group also maintains a global presence with premium preschools and enrichment centres in countries such as Australia, Abu Dhabi, Philippines, Vietnam, Myanmar, and Malaysia.

Education is one of two industries that usually remain resilient during a crisis, and investors can rest assured that parents will generally not compromise the quality of their children’s education unless they absolutely cannot help it. As one of the leading preschools in Singapore, Mindchamps enjoys good brand recognition, and it also has a great track record of delivering quality education.

The most recent news on Mindchamps was an announcement in June that it was purchasing Mindchamps Preschool @ Buangkok Pte Ltd for a consideration of S$3.23 million. With plans to grow steadily, Mindchamps should be able to increase student numbers over time. The group paid out a final dividend of 1.34 Singapore cents, providing investors with a 2.2% dividend yield.

Stability compensates for low dividend yields

Investors may frown on the low dividend yields for these two companies, but I feel their stability and resilience during downturns compensates for the apparent low yield. If these businesses continue growing, the dividends per share they pay out could also increase in the future.

Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.  

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Riverstone Holdings Limited. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned. 
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Global Invacom Group Ltd (SGX: QS9) is a fully integrated satellite equipment provider. The group has six manufacturing plants in China, Israel, Malaysia, the UK, and the US. Global Invacom provides a full range of antennas, fibre distribution equipment, and transmitters in satellite communications and is one of the world’s only designers and manufacturers of both electronics and antenna solutions. The group currently has 82 patents with another 38 pending approval.

The group has demonstrated double-digit growth in revenue, increasing from US$28.9 million to US$38.3 million for a 32% increase. Gross profit margin remains healthy at 20.3% for Q1 2019, but net profit was just US$741,000 due to higher levels of administrative expenses and also higher finance costs.

Global Invacom may be on the cusp of strong growth thanks to several recent business developments; let’s take a look at them.

Bx-WiFi Partnership

In March, Global Invacom announced a partnership with Edgewater Wireless Systems Inc (CVE: YFI) for the further development of Broadcast WiFi, also known as Bx-WiFi. This technology enables live, high-quality, and large-scale event streaming over a WiFi network — for example, a rock concert or a major speech given in a large auditorium.

With more and more people attending live concerts around the world, the development and commercialisation of this technology holds good promise for Global Invacom, though the company has yet to announce concrete monetisation plans.

Acquisition of Apexsat Pte Ltd

In June, Global Invacom announced the acquisition of the assets and intellectual property from Apexsat Pte Ltd. This acquisition will broaden the group’s product suite and enable it to address the entire global market for different satellite communication products. The acquisition is expected to contribute positively to the financial performance of the group and cost the group EUR 250,000, which will be paid fully in cash.

Tony Taylor, executive chairman of Global Invacom, had this to say about the acquisition:

“We are delighted to be announcing a highly strategic acquisition which brings talent, expertise and knowhow into our business. This is an excellent example of how Global Invacom can continue to broaden its product base alongside securing valuable IP which we believe will underpin further product development. Furthermore, we believe that by integrating the Apexsat technology into Global Invacom, we will be able to upscale the existing Apexsat and Global Invacom customer base through the delivery of high quality, bespoke products.”

Next-gen video broadcasting system live tested over 5G

Rai Radiotelevisione Italiana (Rai), the Italian public broadcasting company, has successfully live-tested mobile TV broadcast over 5G. The Rai transmission system prototype was developed by the Technical University of Braunschweig in Germany, and when integrated with Global Invacom’s Bx-WiFi technology, it enables the simultaneous streaming of uninterrupted audio and video content from multiple sources.

In simple terms, this means users are able to watch the broadcast without experiencing any buffering (delay) or loss of signal, providing a smooth and uninterrupted experience for the user.

Building the foundation for future growth

While the above initiatives may not have concrete revenue projections attached, they still demonstrate how Global Invacom is planning its growth trajectory and laying the groundwork for stronger growth in the future. There are definitely good reasons for investors to feel optimistic.

Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.  

The Motley Fool’s purpose is to help the world invest, better. Like us on Facebook  to keep up-to-date with our latest news and articles.

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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.

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Who doesn’t love dividends? Beyond the regular dividend, some companies occasionally provide investors with a nice bonus by issuing a special dividend for a particular year. 

For instance, Haw Par Corporation Ltd (SGX: H02) paid out a special dividend of S$1 per share earlier this year. Special dividends provide a welcome surprise for those of us who depend on their investments for income.

Although management has the final say on issuing a special dividend, investors can increase their chances of receiving special dividends by investing in companies that have the financial capacity to provide shareholders with these one-off rewards.

Companies able to do so usually (1) have plenty of cash on their balance sheet, (2) have low cash requirements for their business, and (3) are continually generating free cash flow, thereby increasing their cash position. I did a simple screen to find stocks that fit this mold.

VICOM Limited

This vehicle inspection service provider is no stranger to special dividends. In fact, VICOM Limited (SGX: V01) paid out a special dividend of 8.62 Singapore cents per share for its full-year 2018 earnings. VICOM has a stable business that consistently generates plenty of free cash flow.

More importantly, VICOM has a pile of cash on its balance sheet that should give it the ability to pay out another special dividend. As of 31 March 2019, VICOM had S$112.8 million sitting in the coffers. It also generated S$8.7 million in free cash flow in the first quarter of 2019. 

As VICOM’s business shouldn’t require so much cash on its balance sheet, it could potentially continue dishing out special dividends for the next couple of years — until its cash position is more in line with business requirements.

Hour Glass Ltd

Luxury watch retailer Hour Glass Ltd (SGX: AGS) increased its dividend from 2.5 Singapore cents in the year ended 31 March 2018 to 3.5 Singapore cents in the year ended 31 March 2019. However, based on its financials, there is still plenty of room for the group to dish out even more dividends in the future.

As of 31 March 2019, Hour Glass had a whopping S$180.9 million in cash and equivalents and just S$14.9 million in borrowings. For the 12 months prior, the group also generated S$46.9 million in free cash flow, further adding to its cash position.

In the last five years, Hour Glass’ net cash position has increased from S$37 million to S$166 million. Moreover, Hour Glass is a mature business that’s not rapidly expanding its network of outlets. As such, the company is clearly in a great position to dish out a special dividend to investors if it so wishes.

Cortina Holdings Limited

The third company on this list is another luxury watch retailer: Cortina Holdings Limited (SGX: C41). The specialised watch retailer has a network of more than 20 outlets around the region. Like Hour Glass, Cortina has a healthy net cash position of S$57.3 million. It also generated S$80.2 million in free cash flow last year.

Cortina has managed to sustain a healthy profit since it was founded some 20-plus years ago and is now riding on the recovery of the luxury watch industry. All things considered, Cortina could be another stock that could provide a welcome surprise in the next few years.

There are 28 surprising and important things we think every Singaporean investor should know—and we’ve laid them all out in The Motley Fool Singapore’s new e-book. Packed with information and insights, we believe this book will help you be a better, smarter investor. You can download the full e-book FREE of charge—simply click here now to claim your copy.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia owns shares in Hour Glass Ltd. The Motley Fool Singapore has recommended shares of VICOM Limited and Haw Par Corporation Ltd.

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Recently, we saw that there were 106 net-net stocks, as of 15 July 2019. To understand what a net-net stock is, you can head here.

Here, let’s explore 20 of those cheapest stocks sorted out according to the following two lists:

1) The 10 net-net stocks with the largest market capitalisations; and

2) The 10 largest net-net stocks that have positive net income over the last 12 months, as well as more cash than debt on their balance sheets.

Here are the 10 stocks on the first list: UOB-Kay Hian Holdings Limited (SGX: U10), Hong Leong Asia Ltd (SGX: H22), Sing Holdings Limited (SGX: 5IC), SLB Development Ltd (SGX: 1J0), Hanwell Holdings Ltd (SGX: DM0), Tiong Seng Holdings Limited (SGX: BFI), ISDN Holdings Limited (SGX: I07), YHI International Ltd (SGX: BPF), Dutech Holdings Ltd (SGX: CZ4), and IFS Capital Ltd (SGX: I49).

Company Market cap (S$’ million) Ratio of market-cap-to-net-current-asset-value
UOB-Kay Hian Holdings Limited 1002.4 0.707
Hong Leong Asia Ltd 437.5 0.425
Sing Holdings Limited 162.4 0.968
SLB Development Ltd 127.8 0.837
Hanwell Holdings Ltd 113.5 0.687
Tiong Seng Holdings Limited 104.5 0.908
ISDN Holdings Limited 99.1 0.978
YHI International Ltd 96.5 0.797
Dutech Holdings Ltd 80.2 0.904
IFS Capital Ltd 79.0 0.659

Source: S&P Global Market Intelligence

The following are the stocks on the second list: Hong Leong Asia Ltd, Hanwell Holdings Ltd, ISDN Holdings Limited, Dutech Holdings Ltd, PNE Industries Ltd (SGX: BDA), Multi-Chem Ltd (SGX: AWZ), Asia Enterprises Holding Limited (SGX: A55), Sin Ghee Huat Corporation Ltd (SGX: B7K), Pan Hong Holdings Group Ltd (SGX: P36), and Sunright Limited (SGX: S71).

Company Market cap (S$’ million) Ratio of market-cap-to-net-current-asset-value
Hong Leong Asia Ltd 437.5 0.425
Hanwell Holdings Ltd 113.5 0.687
ISDN Holdings Limited 99.1 0.978
Dutech Holdings Ltd 80.2 0.904
PNE Industries Ltd 66.3 0.955
Multi-Chem Ltd 64.9 0.743
Asia Enterprises Holding Limited 52.5 0.858
Sin Ghee Huat Corporation Ltd 48.8 0.643
Pan Hong Holdings Group Ltd 48.2 0.417
Sunright Limited 47.3 0.591

Source: S&P Global Market Intelligence

The Foolish bottom line

Net-net stocks are usually companies that are in serious trouble and/or have poor business fundamentals. That is why diversification is important when investing in such stocks.

The two lists of cheap stocks seen earlier are not a recommendation to buy or sell any of those stocks. The aim here is to simply share some of the undervalued stocks in Singapore’s stock market right now for your further research.

Meanwhile, there are 28 surprising and important things we think every Singaporean investor should know—and we’ve laid them all out in The Motley Fool Singapore’s new e-book. Packed with information and insights, we believe this book will help you be a better, smarter investor. You can download the full e-book FREE of charge—simply click here now to claim your copy.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.

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Dairy Farm International Holdings Ltd (SGX: D01), or DFI, is a pan-Asian retailer that operates many retail formats such as hypermarkets, supermarkets, convenience stores, and health and beauty stores. As of 2018 year-end, the group and its associates and joint ventures operated 9,700 outlets and employed over 230,000 people.

Its business has faced issues recently and the company’s response was to carry out a transformation plan. I had written about the key details of this plan some time back. DFI is poised to enjoy significant benefits from it should all go well. Here’s one particular part of the plan that I’m excited about and which I feel could result in higher margins and possibly lead to higher dividends in future.

Massive growth potential in China

With the focus being on China, the potential to scale and grow cannot be underestimated as China is the world’s largest consumer market. Early on, DFI had recognised the importance of China as a growth market and had made an investment into Yonghui Superstores for a 19.99% stake. Yonghui acted as DFI’s initial gateway into the Chinese market, and the group plans to further embed themselves in China as it sees potential in serving the consumer market there.

In addition, DFI is also working with China technology companies to devise ways to grow its market share and presence. By tapping technology to enhance its offerings and to track consumer spending, basket size and other aspects, DFI will be able to curate their offerings better, thus attracting higher footfall and increasing consumer spending.

The use of technology will also improve margins over time. Higher levels of automation will cut down on unnecessary manpower as operations become more efficient, while less staff are also needed to track operational metrics if there are computerised sensors that are able to do the same job more effectively.

Better cash flow and dividend prospects

With management’s savvy in running the business and their penchant for prudence, I am confident that the business should be able to turnaround once these initiatives are implemented, though patience is needed in order for the benefits to flow through to the bottom line.

This transformation plan has also demonstrated that management is now more focused on growing in areas where it has strengths and that it is also more proactive in responding to changes in the retail environment. The improvement in margins should result in better cash flows, which should then lead to an increase in dividends. Once the turnaround plan gains traction, DFI’s share price should also re-rate positively and offer investors great capital gains as well as dividend potential.

Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.  

The Motley Fool’s purpose is to help the world invest, better. Like us on Facebook  to keep up-to-date with our latest news and articles.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Dairy Farm International Holdings Ltd. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned. 

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Singapore Telecommunication Limited (SGX: Z74), or Singtel, is Asia’s leading telecommunications group, and provides a range of services from mobile and pay TV to technology services and infotainment to both consumers and businesses. Singtel has a presence in Singapore, Indonesia, Australia, Africa, as well as India.

Singtel’s share price has soared 21% year-to-date, from S$2.88 to S$3.50. For a large blue-chip conglomerate, this is very impressive as the Straits Times Index (SGX: ^STI) has only risen by around 9.1% year-to-date. However, does this mean Singtel’s growth has been priced in? Is there more room for the business to improve?

Here are two aspects of the business that I feel will continue to drive growth ahead.

1. Reducing costs through digitalisation and automation

Digitalisation and automation are being harnessed to improve the customer experience and to achieve a leaner cost structure for Singtel. The group estimates that cost savings of around S$490 million can be delivered in the fiscal year 2020 (Singtel has a 31 March fiscal year-end). It seems that Singtel is making a concerted and coordinated effort to reduce its operating cost base, and the benefits could come through as soon as next year.

2. The planned monetisation of digital life division

Singtel’s latest annual report has management confirming that it plans to monetise some of its loss-making digital investments. These include its cybersecurity business, its digital life division, and also the Amobee advertising arm, all of which have been bleeding thus far. The idea now is for digital units such as Amobee and Hooq to “realise value” through bringing in additional partners (as stakeholders in the entity), or through an initial public offering.

It should be noted that as these are early-stage growth businesses, traditional valuation metrics would not work and metrics which are more appropriate for these industries should instead be used. This means that Singtel may start to disclose different methods to value each of these loss-making units to give investors a better sense of what they are worth.

Room for further growth

The initiatives that Singtel is undertaking would help to stabilise the business and prevent it from declining further. Although its key markets are still going through challenging and competitive conditions, it appears that the worst is over for Singtel, and investors can now look forward to some semblance of growth. The growth may have been priced in for the year thus far. However, I believe there is room for the group to do even better as it has diversified operations outside of Singapore, and would not fall victim to the liberalisation of the telecommunications market like its more locally-entrenched competitors have.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.

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Those mischievous brokers and analysts are at it again. Bereft of anything meaningful to write about they have, somewhat predictably, turned their attention to Singapore REITs. After all, those REITs have outpaced the broader equity market this year.

Since the start of the year, the FTSE Straits Times Index has surged 18%. On average, they are now trading at around 20% above their book value, which is the priciest they have been in more than six years.

So, what goes up must come down, right? Wrong!

But according to some market experts, we should ditch REITs and buy something else instead.

Thing is, REITs have performed well, given that interest rates have been low. Interest rates have been so low that some sovereign bonds have negative yields. By comparison, US 10-year Treasuries that are yielding around 2% are starting to look more like junk bonds….

…. it’s not too surprising, then, that the market is pushing the US Fed to cut rates.

And it is the prospect of lower rates that have been pushing more investors into REITs. That is one of the unintended consequences of Quantitative Easing, namely, asset price inflation. In this case, the price of REITs, which is an asset, have climbed.

But rather than switch, consider why you bought those REITs in the first place. If the objective was to secure income – preferably rising income – for the long term, then REITs should continue to deliver.

But if your objective was to make a quick gain, then, by all means, sell. It might even bring prices down for those of us with an eye on the long haul.

Point is, REITs should continue to do well provided there is plenty of liquidity in the market or there is healthy economic activity. I don’t see either of those two things disappearing any time soon.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your FREE subscription to Take Stock — Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock — Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.

Like us on Facebook to keep up to date with our latest news and articles. The Motley Fool’s purpose is to help the world invest, better. 

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.

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Mapletree Industrial Trust (SGX: ME8U), or MIT, is one of the biggest industrial real estate investment trusts (REITs) listed in Singapore. It has 87 industrial properties in Singapore and 14 data centres in the US (through its 40% joint venture with parent and sponsor Mapletree Investments Pte Ltd).

In this article, I’ll explore three good reasons for investors to like the REIT now.

Solid track record

One of the very first thing to like about MIT is its solid historical financial performance. Since its IPO, MIT has grown its gross revenue from S$ 246.4 million in FY11/12 to S$376.1 million in FY18/19. Similarly, its distributable income grew from S$131.7 million to S$231.8 million during the period. Consequently, distribution per unit (DPU) grew from 8.41 cents in FY11/12 to 12.16 cents in FY18/19.

I don’t know about you but such numbers are definitely appealing to me as an investor. But can MIT sustain its historical performance going forward? Let’s look at our next point below.

Positive quarterly performance

Not only did MIT has a strong track record but it’s also continued to deliver positive performance lately. Let’s look at some numbers.

For the quarter ended 31 March 2019, MIT’s gross revenue grew 5.6% year-on-year to S$98.8 million while net property income improved by 5.5% year-on-year to S$75.9 million. Similarly, the REIT’s distribution per unit (DPU) was up by 0.3% year-on-year to 3.08 cents.

The improvement was primarily due to income contributions from development projects, as well as contributions from new properties. In short, MIT sustained its strong performance in the latest quarter.

Low gearing

Last but not least, I want to emphasise another important point here about MIT, which is its low gearing.

As of 31 March 2019, the REIT’s gearing stood at 33.8%, which is a safe distance from the regulatory ceiling of 45%. There are many benefits of having a low gearing. For one, its financial risk is lower. What’s more, such low gearing means that MIT has ample room to leverage its balance sheet to acquire new assets without the need for shareholder dilution.

Overall, investors will be able to sleep better, knowing that the REIT is financially sound while positively positioned to grow.

Conclusion

In sum, I believe MIT is a solid REIT for investors to explore further because of its impressive financial track record, strong execution, and low gearing.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has recommended shares of Mapletree Industrial Trust.

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