Stock Insights by Financial Bloggers

2020 has been one unforgettable year where we are faced with our first global pandemic, forcing significant changes to our lives. Stocks are also extreme where the year started bullish till COVID-19 came along and dramatically changed everything.

Looking forward, Investor-One invited 3 financial bloggers, Brian Halim from 3foreverfinancialfreedom, Sudhan from Seedly and Willie from Dividend Titan to share their views on 3 Singapore listed companies.

Frencken Group (SGX: 1D0)

Brian Halim: Frencken is a company that is on the momentum with increasing demand, better margins mix, and increasing profile due to the proliferate of rising semi-conductor demand worldwide.

Its latest Q3FY20 result took them to over $13m in profit with better gross margin and higher ROE.

Its valuation is also only in the 13x Forward PER so it is not overly excessive for a company and industry that is gaining plenty of positive momentum.

Outlook for the near term in FY21 is also very healthy and apparent, with the accelerating demand of the 5G technology and it looks like the party will continue for a while now.

A company I might ride on for the momentum of increasing demand.

Sudhan: Over the past five years, from FY2015 to FY2019 (the company has a 31 December year-end), revenue and net profit increased by 11% and 45%, respectively, on an annualised basis.

For the nine months ended 30 September 2020, however, Frencken’s revenue fell 7.2% year-on-year to S$458.0 million. Business disruptions due to the pandemic and a slowdown in economic activity led to lower sales in Frencken’s industrial automation, analytical and automotive segments.

The company’s net profit improved though; earnings rose 3% to S$32.1 million likely due to a tighter cost control measures.

Frencken’s balance sheet is healthy, just like its counterparts reviewed here. The company ended off its 2020 third-quarter with a net cash position of S$69.3 million.

Looking ahead, Frencken expects to show modest revenue growth in the second half of the year as compared to the first half due to improved sales at most of its key business segments. I will be watching Frencken in 2021 to see if the company returns back to strong growth.

Willie: Frencken Group is a S$533 million Singapore-based component maker. It specializes in designing and making equipment parts for medical devices, semiconductors and factory equipment.

Some of these components include micro-motor for heart implants, digital scanners, IC testers and manipulators. These are critical parts which are then sold to original equipment manufacturers (OEM).

Frencken is well-positioned to take advantage of the growing semiconductor market.

In fact, SEMI, the global industry association for electronics manufacturing and design supply chain estimates worldwide semiconductor manufacturing equipment sales to grow 11% to US$70 billion in 2021.

With the rollout of 5G networks and the increased use of 5G-enabled devices like smartphones and “Internet of Things” (IOT) devices, this is one stock I will add into my watchlist for 2021.

Kimly Limited (SGX: 1D0)

Brian Halim: COVID-19 has challenged every industry in FY2020, but F&B rebounded faster than expected due to its resilient nature.

Dining at the F&B outlets of Kimly has been allowed since June during the Phase 2 period, hence it mitigates the overall impact of the COVID-19 during circuit breaker period.

The Group has announced full-year results with profits for the year ending at $25.2m, which is up 25.8% from the previous year of $20.1m. While revenue has mostly stagnated during the abovementioned period, the Group managed to improve the overall margin by improving the product mix as well as government grants received from the result of Job Support Scheme and rental rebates, amounting to a total of $13.6m.

The Group remains a strong player in the F&B industry, generating a good amount of cashflow in organic growth, with expansion plans in the next few years. The company could be one to look out for.

Sudhan: Kimly is a very interesting company. Many may know it as a traditional coffee shop operator but essentially, it has multiple brands to serve different segments of the market.

For FY2020, which ended on 30 September 2020, Kimly’s revenue grew 1.2% year-on-year to S$210.8 million while net profit increased by 25.8% to S$25.2 million. The growth is despite COVID-19-related headwinds.

Kimly also has a strong balance sheet with S$68.3 million in cash and just S$25.5 million in total debt.

With Singapore entering Phase 3 of re-opening from 28 December, Kimly’s outlet management division should see higher revenue in the coming year. This division fell 7% year-on-year in FY2020 largely due to dine-in restrictions implemented during the circuit breaker.

Kimly has an attractive dividend yield of 3.7% at its share price of S$0.305. At a dividend payout ratio of around 53%, the dividend looks safe. I will be watching Kimly in 2021 to see how its business improves.

Willie: Coffee shops are a unique thing in Singapore. And there is no other place in the world which offers the type of communal dining commonly seen in Singapore.

Kimly is probably one of the largest coffee shop operators here, with a market cap of S$368 million. Since its listing in 2017, the company has grown to 72 outlets under its popular “Kimly” and “food clique” brands.

What is interesting to me about Kimly is the fact that it mainly serves the heartland areas.

I think having access to a convenient location with affordable food is a huge plus, especially if you are “working from home”.

And with many of Kimly’s outlets located close to residences, it simply meets local demand for affordable food.

I will put this stock under my watchlist for 2021.

Straco Corporation (SGX: S85)

Brian Halim: Straco, being a pure tourism demand related play was heavily decimated like any other hospitality industry during COVID-19.

While fundamentals and balance sheet of the company look strong, COVID-19 exposes them into a vulnerable position where the company stands at a standstill when the circuit breaker and suspension had to take place.

Before the pandemic happened, the Group already faced several issues with Singapore Flyer, causing it to go into suspension on several occasions, mainly due to maintenance. There were also instances where there was a somewhat seemingly lack of updates from the management on happenings on the ground and steps taken to resolve the issue.

While the company remain a good proxy to the recovery of the tourism sector, there are other better plays under the recovery theme. The yield is low, ROE is falling, and the company is in a very sensitive tourism sector.

A company that I will not be putting my money on.

Sudhan: Straco has been badly hit by the closure of Singapore Flyer till 22 July 2020 and the ongoing COVID-19 pandemic. As a result, Straco’s revenue plunged 78% year-on-year while its bottom-line reversed into a net loss for the first nine months of 2020. Not surprisingly, the company’s share price tumbled as well.

Straco seems to be taking advantage of the low valuation (using normalised earnings) of its shares to buy back its stock. According to ShareInvestor “Company Buyback” data (as of 16 December 2020), Straco bought back S$3.9 million of its shares from the market in 2020. This is higher than the S$980,000 and S$1.3 million worth of shares repurchased in 2019 and 2018, respectively.

In terms of business recovery, one bright spark is that China’s large domestic tourism market has provided support in the gradual recovery of Straco’s businesses in the country. Over in Singapore, Singapore Flyer should see slower recovery as we rely mainly on international tourism.

Overall, Straco’s rock-solid balance sheet will help it to tide through tough conditions. As of 30 September 2020, it had around S$159 million in net cash. The huge cash hoard allows it to seize any business opportunities that may present themselves.

I own some shares in Straco so I will surely be tracking Straco’s business closely in the coming year and beyond.

Willie: Singapore Flyer is an iconic giant observation wheel at Downtown Singapore. Opened in 2008, it is one of the world’s tallest Ferris wheel, emulating the famous London Eye.

This iconic attraction is owned by a S$482 million company called Straco Corporation.

Straco does not just own the Singapore Flyer, it also manages theme parks in China, including the Shanghai Ocean Aquarium and Underwater World Xiamen. These theme parks are a popular attraction amongst the locals.

COVID-19 has affected Straco’s business, but it is likely able to ride through the hard times given its well-managed balance sheet.

As at Jun 2020, the company has around S$186 million of cash, which could easily cover its entire liabilities of S$121 million.

With a vaccine in place and the world prepares to open up its tourism industry, Straco is well-positioned to capture back tourist growth.

I will be keeping watch on this stock closely for 2021.

Disclaimer: Please note that the above content is purely for information purposes and does not constitute a buy or sell intention nor represent the views of Investor-One.

Special thanks to the contributors:

• Willie, Dividend Titan

• Sudhan, Seedly

• Brian, A Path to Forever Financial Freedom (3Fs)

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