Portfolio Updates (2Q18)

The 2nd quarter of 2018 has not been kind on my semiconductor stock holdings. Both UMS and AEM have taken a beating. As a result of the decline in price, they are no longer on my list of potential stocks to own at the moment. However, I am not selling my holdings because I am still bullish on the semiconductor industry outlook. I might consider adding more, but I am currently holding on to more cash for personal reasons.

I have added 2 new stocks to my portfolio. They are Breadtalk (SGX: CTN) and SBS Transit (SGX:S61). Below are more details on the companies.

Breadtalk Group Limited (SGX: CTN)

Business Description

BreadTalk Group Limited, an investment holding company, engages in bakery, food court, restaurant, and food and beverage businesses in Singapore, Mainland China, Hong Kong, and internationally. The company manufactures and retails various food, bakery, and confectionary products, as well as engages in franchising activities. It also manages and operates food courts, food and drinks outlets, eating houses, and restaurants. In addition, the company bakes, manufactures, and deals in bread, flour, and biscuits; acquires and holds intellectual property rights; processes, distributes, and sells premium coffee beans and tea dust; and distributes related processing equipment. Further, it is involved in the wholesale of confectionery and bakery products; and food and beverage management activities. The company operates 871 bakeries, 53 food atria’s, 25 restaurants, and 5 4orth outlets. BreadTalk Group Limited was founded in 2000 and is headquartered in Singapore.

Current Strategy Statistics as of 8th Jun 2018

Market Cap: SGD 580.18mn
EBIT/Enterprise Value: 4.9% (Ranked 9th out of 14)
EBIT/(Net Working Capital + Net Fixed Assets): 70.5% (Ranked 2nd out of 14)

Personal Note

There are numerous bakeries in Singapore but I feel that Breadtalk is definitely one of the market leaders. On top of that, they are diversifying into other businesses that could improve their margin mix (e.g. Din Tai Fung, Food Republic, Toastbox).

Personally, I frequent Toastbox for my Saturday breakfast and never fail to face the same issue. I will always have to look for seats - A good problem to have for a shareholder of Breadtalk? I like the business model as it's a cash up front business, there would be very little working capital requirements. Higher trade receivables than payables, which is a form of financing. Digging into the numbers, the net working capital for Breadtalk Group Limited as of latest available figures was negative SGD 121.07mn. 

I see the route for Breadtalk's growth through store expansion, but more importantly, improving the margin mix as that is more sustainable compared to simply opening more stores.

SBS Transit Ltd (SGX: S61)

Business Description

SBS Transit Ltd provides bus and rail public transport services primarily in Singapore. The company operates through Public Transport Services and Other Commercial Services segments. Its bus services include basic, special, fast forward, wheelchair-accessible, short trips, wireless Nextbus services, Chinatown Direct, and Nite Owl services. The company also operates North East Line, an automatic underground heavy rail system; Downtown Line, an underground and driverless mass rapid transit (MRT) line; and Sengkang and Punggol light rail transits (LRT). In addition, it offers advertisement on the buses and trains, as well as at bus interchanges, and railway stations; and commercial and shop space for lease at bus interchanges and rail stations. SBS Transit Ltd operates 208 bus route services with a fleet of 3,246 buses; 16 stations at North East Line; 34 stations at Downtown Line; and 28 stations in the Sengkang- -Punggol LRT. The company was formerly known as Singapore Bus Services Limited and changed its name to SBS Transit Ltd in November 2001 to reflect its multi-modal status as a bus and rail operator. The company was incorporated in 1992 and is based in Singapore. SBS Transit Ltd is a subsidiary of ComfortDelGro Corporation Limited.

Current Strategy Statistics as of 8th Jun 2018

Market Cap: SGD 812.9mn
EBIT/Enterprise Value: 6.7%% (Ranked 5th out of 14)
EBIT/(Net Working Capital + Net Fixed Assets): 8.9% (Ranked 6th out of 14)

Personal Note

Attached below is a table for ridership figures broken down by bus and rail throughout the recent years. There is an increasing number of people taking Rail while for busses it has more or less stayed consistent. 

Owning a vehicle in Singapore is becoming a luxury and most of us will still rely on public transportation to get around. I believe going forward, most people my age will use a combination of public transportation (bus/rail) and ride-sharing services such as Grab, instead of owning a vehicle. On top of that, there have been a number of Built-to-order projects in Punggol and Sengkang which could potentially increase the number of ridership for LRT.

Similar to Breadtalk, this is a business with cash upfront and more receivables than payables. Looking into the latest financials, net working capital was negative SGD 5.67mn.

My reason for buying this stock because I believe everyone overlooked this counter as it's "boring". However, the earnings yield proves otherwise.

I will be vested in these 2 counters for the next year and reassess them later on. What do you think? I would love to hear your thoughts.

Cheers.