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Best Blue Chip Stocks in Singapore

SG, Stocks

Written by:

Alvin Chow

I was curious if any blue chip stocks in Singapore possessed moats and found out that MorningStar had created an Economic Moat rating to ease the process of identifying companies with moats. 

While easy to grasp as a concept, it is difficult to define moat in the real world. Hence, I found MorningStar’s Moat framework useful.

After diving into Morningstar’s economic moat framework, research and data, I’ve gathered 13 Singapore Blue Chip companies which have moats, which I will share below.

But first:

What are Moats?

Moats refer to sustainable competitive advantages that allow a company to maintain an edge over its rivals and protect its market share and profitability. 

The term “moat” draws an analogy from the medieval era, where a castle surrounded by a moat was difficult for attackers to breach. Similarly, a company with a strong economic moat possesses unique qualities that make it challenging for competitors to replicate or surpass its success.

5 Types of Moats

Here are the 5 categories of Moat, as identified in MorningStar’s framework:

  1. Intangible Assets: This includes branding, rights, intellectual property and more.
  1. Switching Costs: Switching costs makes it challenging for customers to switch to another service provider or product. An example includes having established protocols or infrastructure.
  2. Network Effect: Network effect is when once a company gathers a substantial user base, it becomes challenging for new entrants to compete in the same market. This makes acquiring users increasingly difficult for potential competitors. Social media platforms and supply and demand aggregators like Grab and Uber exemplify this effect. 
  3. Cost Advantages: Companies with cost advantages can produce goods and services at lower costs than their competitors, resulting in higher profit margins and ability to cut prices and kill competitors. This can be achieved through various means, such as operational efficiencies or economies of scale.
  4. Efficient Scale: Efficient scale revolves around the difficulty for competitors to match a company’s established distribution network or market presence. Companies with efficient scale have a significant advantage in terms of their extensive reach and the difficulty for new entrants to replicate their distribution capabilities.

Now, let’s take a look at each the blue chip stocks with moat:

13 Blue Chip Stocks in Singapore with Moat

p.s. I’ve compiled details and included more data about these Singapore blue chip stocks into a report, download it here:

The three local banks (DBS, OCBC, UOB)

The three Singapore banks, DBS, OCBC, and UOB, form a crucial part of Singapore’s economy. Morningstar highlights their cost advantage as a key moat, given their ability to amass a large customer deposit base despite offering lower interest rates. Having lower cost of acquiring capital allows the banks to widen their margins.

Additionally, their extensive ATM networks in Singapore create higher switching costs for customers, making it challenging for them to switch to foreign banks.

On top of that, my personal view is that these local banks enjoy the intangible benefits of owning strong branding, high trust. Even the government seems to rely on the local banks as a preferred channel of distribution.

Growth prospects of Singapore Banks

The local banks have also proven themselves capable of warding off competitors. Despite the entry of new foreign banks and even the up-and-coming digital banks, the local banks continue to own the majority of the market share in Singapore. 

On top of that, we’ve also seen them trying to expand beyond our little island. For example, DBS has expanded to India and China while UOB managed to capture some of Citi’s market share in Taiwan after the latter exited the markets.

SingTel (SGX: Z74)

Singtel holds 47% of the total mobile market subscribers in Singapore, making it the largest telecommunications company in Singapore, and also the most profitable.

Morningstar identifies its market dominance and enterprise services, which establish sticky relationships with government agencies and businesses, as moat factors. At the same time, Singtel’s communication network is also seen as a key national asset. You wouldn’t want to hand control of your country’s communication network to foreigners, especially in times of conflict.

Singtel’s network infrastructure, including its fiber network, is difficult to replicate, further enhancing its competitive advantage.

Personally, I don’t think that Singtel can grow significantly in the coming years. Although they have tried to venture overseas, they didn’t see much growth despite their efforts.

In terms of dividends, Singtel’s yield isn’t particularly high (hovering between 3-4%), although you can expect it to be rather consistent. 

I would characterize Singtel as a value play, however it would require certain catalysts to unlock its value. An example was its Netlink Trust spin-off. I would think that if Singtel considered a data centre spinoff, that could do well too.

ST Engineering Ltd (SGX: S63)

As Singapore’s main defense contractor, ST Engineering benefits from its close ties to the government. 

Morningstar highlights the high switching costs associated with defense contracts, as well as consistent defense spending by the Singapore government. These factors ensure ST Engineering’s relevance and position as a key player in the defense industry.

If you’re looking for growth in the >10% range, ST Engineering isn’t for you. Instead, it should grow slowly and steadily, in tandem with Singapore’s defense spending. However it can be considered as a dividend stock (at about 4-5%). 

Capitaland Integrated Commercial Trust (CICT) (SGX: C38U)

Although there is a selection of REITs in the STI, most of them don’t seem to have a moat (based on MorningStar’s framework).

However, CICT qualifies because together with its sponsor Capitaland, it owns around 20% of Grade A office space in the Singapore Central Business District (CBD). Due to the limited office space in Singapore’s CBD, CICT’s position allows it to capture most of the office demand in the city. 

Additionally, CICT’s retail mall assets provide them with strategically located properties often found near MRT stations, ensuring high human traffic. 

The advantageous locations and positions of CICT’s assets are not easy to dislodge.

That said, commercial properties are not doing very well at the moment due to the shift to Work-From-Home (WFH). Although the impact within Singapore isn’t as significant, we are unsure if demand and occupancy for CICT’s commercial properties can sustain given the increase in WFH and hybrid work options. I would keep an eye out on CICT’s upcoming occupancy and renewal numbers.

p.s. here’re 4 more S-REITs with Moats.

Genting Singapore (SGX: G13)

Genting owns one of the only two integrated resort licenses to run casinos in Singapore, Resort World Sentosa which is a key tourist attraction. MorningStar highlights that the limited number of licenses prevents new players from entering the market, making Genting one of the beneficiaries. 

It was impressive that despite challenges faced during the COVID-19 pandemic, Genting managed to give dividends in 2020 and 2021, due to its strong balance sheet and low liabilities.

Their ability to keep giving out dividends in the tough year is a clear example of their competitive advantage which allowed them to build up a cash pile during good times.

Hongkong Land (SGX: H78)

A property developer and investment holding company, Hongkong Land passed the MorningStar moat framework as it owns prime properties in the Hong Kong CBD area. Like CICT’s Singapore commercial property portfolio, Hongkong Land owns a good chunk of properties in a similarly space-deprived country.

On top of Hongkong assets, Hongkong Land also owns part of the Marina Bay Financial Centre (MBFC) properties in Singapore.

However, Hong Kong’s office demand did not recover as much as Singapore, which means the company continues to struggle post-covid. The bearish sentiment in the China property market has also affected Hongkong Land because the company develops properties in mainland China as well. 

Despite these challenges, their finances remain strong.

p.s. I’ve compiled details and included more data about these Singapore blue chip stocks into a report, download it here:

Singapore Exchange (SGX: S68)

SGX is the Stock Exchange of Singapore and the only company in this list with a “wide moat” rating from Morningstar. 

Being the only stock exchange in Singapore, SGX benefits from network effects and having a large number of buyers and sellers for transactions. 

However, it faces challenges. SGX has to fend off regional and international competitors, while dealing with a declining listing business. To combat this, SGX has been creating more products, such as Singapore depository receipts (SDR) and index products, to offer local investors opportunities to invest overseas without leaving the SGX ecosystem. 

The derivative market (eg. forex, index future) is looking to be a promising growth driver for SGX, with trading volumes outweighing its regional peers.

4 additional blue chip stocks with (quantitatively determined) Moats 

Unlike the companies above, these 4 Singapore blue chip stocks were quantitatively determined to possess moats, however MorningStar did not provide any qualitative assessment nor explanation. 

The following are mostly my opinion, but let’s take a look at these companies:

Sembcorp (SGX: U96)

Sembcorp benefits from power generation assets, which involve long-term contracts with the government. This means that there will be high switching costs which serves as Sembcorp’s moat.

Venture (SGX: V03)

Venture is an electronics manufacturing company, however I do not see any clear moats for this company. They do not have any outstanding brand nor products that stand out. 

They do enjoy some economies of scale at their size, which could translate to cost advantages, however I do not think that this is sufficient as a moat.

If you have insights, do share it with me in the comments below!

ThaiBev (SGX: Y92) and Emperador Inc (SGX: EMI)

Both ThaiBev and Emperador are beverage companies specializing in alcoholic drinks. ThaiBev is known to distribute Thai hard liquor, Chang Beer and certain whiskey brands while Emperador distributes its namesake brandy and other whiskey brands.

They own intangible assets in terms of their brands due to customer preferences for certain alcoholic drinks. 

ThaiBev has also acquired the F&N brand, which includes non-alcoholic beverages and has an established presence in Southeast Asia.

I also talked more about these stocks here:

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