2 Defensive Stocks For a Market Engulfed in Trade Wars
The 10th anniversary of the Lehman Brothers collapse is just around the corner, and some investors may be feeling pessimistic.
The US-China trade war has dominated headlines in 2018, and the Lion City has not been spared. The Straits Times Index (SGX: ^STI) has sunk over 14% from its April 2018 peak of 3,641 points to less than 3,120 today. As stocks in Singapore and Asia continue a broad sell-off, some sectors have become a beacon of resilience. The consumer staples sector is often cited as a defensive sector.
Today, I would like to look at two Singapore companies, in particular, from the sector.
1. Old Chang Kee Ltd (SGX: 5ML)
Old Chang Kee’s curry puffs, also known as Curry’O, needs no introduction to Singaporeans.
Despite the wider market sell-off, the company’s share price has stayed remarkably consistent around an average of S$0.75 since the start of the year. Old Chang Kee’s business has held up well despite all the talk about trade wars. In its latest quarterly earnings report, the curry puff maker’s gross profit margin increased from 60.9% to 64.7%, due to improved manpower efficiency and better food cost management. Old Chang Kee’s operating cash flow more than doubled, enabling it to bring in over S$3 million in free cash flow, a sharp turnaround from the negative free cash flow that the company recorded a year ago.
Notably, Old Chang Kee reported a 55% revenue increase from its fledging catering and events business, which could represent a new area of growth. If Old Chang Kee is able to keep its manpower and food costs in check, it could be a recipe for a steady business performance .
Today, shares trade at a price-to-earnings (PE) ratio of 20, and offer a near-4% dividend yield.
2. Sheng Siong Group Ltd (SGX: OV8)
As the STI sinks to an 18-month low, Sheng Siong’s share price has risen by an impressive 23% from $0.93 at the start of the year to $1.14 today. As our fellow Fool, Jeremy, highlighted in his article, there could be good reasons to be bullish.
Sheng Siong has expanded from 44 stores in 2017 to 48 stores in the first half of 2018; Even as other retailers falter under the threat of online shipping. The supermarket chain operator kept its gross profit margin at 27% for the first half of 2018, up from the 26% it recorded in the first half of 2017. For the first six months of the year, Sheng Siong’s operating cash flow grew 15% to $43 million, up from $38 million a year ago. The company’s balance sheet also boasts S$75 million in cash and cash equivalents with no debt.
The company has plans to increase its store count to 50 in the near term. Meanwhile, investors may want to keep tabs on the developments behind Sheng Siong’s joint-venture with Kunming Luchen Group in China. Much like to its strategy in Singapore, Sheng Siong’s first Chinese store is in a residential enclave in Kunming’s suburbs, avoiding a head-to-head clash with bigger foreign players such as Carrefour and Tesco in Kunming’s financial district.
Sheng Siong shares sport a PE ratio of 24 today, and a dividend yield of 3%.