The Singapore GDP grew by about 4.5% compounded annual growth rate over the past 10 years.
I suspected there would be blue chips that grew faster than the GDP but I didn’t have a sense who they were and how many were out there.
This is a study to find them.
First, we define blue chip stocks as stocks in the Straits Times Index (STI). There are 30 of them.
Second, what growth are we talking about? Revenue? Earnings? Cash Flow? Dividends? In this case we will focus on earnings. At the end of the day, earnings growth is one of the strong drivers for stock price appreciation.
We will also be using Earnings Per Share (EPS) instead of just earnings for the calculation of the growth rates. This is because we want to normalise the effects of those companies who issue shares to acquire companies, which would increase earnings but also the share base.
Ranking them from the highest growth rates to the lowest…
#1 DBS grew earnings by 13% per year
Our national bank has done very well, growing at a compounded annual growth rate of 13%. It is no surprise that DBS grew into the largest listed company on SGX by market capitalisation.
It is also one of the stocks that have distributed higher dividends in the past 10 years.
The stock price has performed well too, gaining 30% in 10 years, despite the recent sharp drop due to COVID-19.
#2 Thai Beverage grew earnings by 9% per year
Thai Beverage is a blue chip every Singaporean should know because you probably have seen 100-plus isotonic drinks, Seasons tea, Ice Mountain water, Magnolia milk, F&N sodas, NutriSoy, NutriWell, F&N Fruit Tree and Farmhouse milk on supermarket shelves. Yes, these are the brands owned by Thai Bev and not just the Chang beer and Thai spirits.
The share price has done fantastically well, gaining 155% in 10 years!
#3 CapitaLand Mall Trust grew earnings by 8% per year
CapitaMall Trust is the first REIT that was listed on the SGX. It owns a lot of iconic malls such as Plaza Singapura, IMM, Bugis Junction and Funan.
The share price gained about 2% from 10 years ago. You might feel that this return is minuscule but don’t forget most of the returns for REITs are given in the form of dividends!
#4 Ascendas REIT grew earnings by 7% per year
Ascendas REIT is the first and largest industrial REIT listed on the SGX by market capitalisation. It has countless properties in Singapore, Australia, the UK and the US.
The REIT is also one of the 18 stocks that have increased their dividends over 10 years.
The share price has gained 50% on top of all the dividends received over the past 10 years!
#5 Venture grew earnings by 6% per year
This is the only engineering stock that made it into the list. They manufacture stuffs and provide engineering services to the electronics industry.
You can see the huge bump in earnings in 2017. Founder Wong Ngit Liong also doubled his salary in 2017, getting paid more than DBS CEO, Puyish Gupta, for that year.
Venture Corp share price has gained 71% from 10 years ago.
#6 OCBC grew earnings by 6% per year
The second bank in the list. OCBC has a rich history, a bank amalgamated by Lee Kong Chian. He is one of the prominent business leaders, philanthropists and forefathers of early Singapore.
OCBC has managed to raise their dividends consistently over the past 10 years.
The share price has just gained 5% in the past 10 years after hitting a high in 2018.
#7 CapitaLand grew earnings by 4% per year
This is the third real estate company appearing in this list. Real estate companies have an advantage as their property valuation gains can be added to the earnings, and Singapore real estate market has done well in the past 10 years.
CapitaLand grew the earnings by 4.5% per year, which is marginally higher than Singapore’s GDP growth rate.
CapitaLand was formed through a merger between DBS Land and Pidemco Land in year 2000. In 18 years, CapitaLand has grown to be the largest real estate company in the Asia-Pacific. That is a phenomenal feat.
The company has also raised dividends in the last 10 years.
However, the share price is not agreeing with the company’s achievements. This is the only stock that has declined since 10 years ago.
All the blue chips’ earnings growth rates
I have only showed 7 of the 30 blue chips. There are the other 23 of them which I have calculated their growth rates as well.
Before I reveal the entire list, I want to explain some of the math behind this.
There are two ways to measure growth rates. First, using Average Annual Growth Rate (AAGR) which we will take a simple average of the yearly growth rates in the past 10 years. I don’t prefer this because year-on-year earnings can fluctuate a lot and will skew the average. Moreover, you should not use average growth rate to do projection of future earnings. They wouldn’t be accurate as they will overestimate the compounding effect in the growth rate.
The second way is to use Compound Annual Growth Rate (CAGR). This is preferred but not without its problems. Because CAGR only takes two data points into consideration – the starting and ending figures. If the earnings in the starting year is an unusually low figure, or the earnings in the ending year is an extraordinarily high figure, the CAGR will be artificially boosted.
But we can also say that huge variability in a company’s earnings also means that they could be in a cyclical industry, or lack competitive advantage, or lack recurring income. So outlier numbers should be doubted.
With that understanding of the limitation of the math, you should know that relying on this alone isn’t going to be sufficient to pick a stock but it can be a good starting point to investigate further.
Here are all the blue chips in the Straits Times Index (STI) and their EPS growth rates:
It is rather surprising to see 13 stocks had negative growth, considering they are powerful companies in this country. And only 7 managed to outgrow our Singapore GDP.
The non-surprising part was the bottom fillers. Hongkong Land suffered valuation loss due to protests in Hong Kong. Keppel and Sembcorp Ind were hit hard by the poor performing oil and gas sector. And SPH’s business model has been etched away by Google and Facebook.
Hence, please do not blindly buy a stock just because it is a blue chip! Their fundamentals can vary significantly!