Year 2023 has been fraught with difficulties, exacerbated by the higher interest rates.
On 10 March 2023, Silicon Valley Bank failed and had to be taken over by the Federal Reserve and Federal Deposit Insurance Corporation. 2 weeks later, the Swiss National Bank had to broker a deal for UBS to acquire the failing Credit Suisse.
Against this backdrop, we have come up with 4 solid companies that could weather the “storm” based on their strong quick (cash) ratios; defined as “Quick Assets” / Current Liabilities.
Quick assets can best be thought of as cash in hand or investments that can be turned to cash quickly, and they can be used to pay off short-term obligations.
#1 Duty Free International Ltd
Duty Free International Ltd (DFI) registered the highest quick ratio of 12.7 times, which means for any one dollar in short-term debt or liabilities, it has 12.7 dollars available to cover it.
DFI is listed in Singapore and is the largest duty-free retailing group in Malaysia. It has about 40 duty-free retail shops at the entry and exit points of airports, seaports, downtown border towns, and popular tourist destinations.
As DFI is very dependent on tourism and cross-border travel, its financial performance suffered during the pandemic. Revenue declined from SGD203.4 million in 2020 (Mar 2019 to Mar 2020) to SGD32.0 million in 2022 (Mar 2021 to Mar 2022).
With the reopening of Malaysia, Thailand, and Singapore, things have started to turn around with revenue growing by 35.5% to SGD24.1 million in 2H 2022 from SGD17.7 million in 1H 2022.
DFI could be worth taking a good look at for the following reasons:
- Have a strong cash flow position with a high quick ratio of 12.7 times.
- Stand to gain from increased tourist flow, especially from Chinese tourists with the reopening of Chinese borders.
- Reversion to mean very likely as post-Covid normalization happens
That said, DFI is currently trading at a ttm P/E ratio of 48x, much higher than the sector average of 8.0 times so investors need to see whether the rebound is incoming.
#2 Riverstone Holdings
Riverstone Holdings is second on this list, with a quick ratio of 11.3 times.
Riverstone is a nitrile glove manufacturer specialising in producing cleanroom gloves, healthcare gloves, fingercots, face masks, and packaging bags. It is mainly concentrated in Malaysia, encompassing 93% of its revenue, followed by China (3.1%) and Thailand (2.7%).
In terms of financial performance, Riverstone like all the other glove companies suffered a drop in revenue in 2022 to SGD394.6 million from SGD1.0 billion in 2020.
Likewise, profits also shrunk to SGD98.5 million from SGD459.7 million over the same period.
Riverstone currently has a HOLD call from analysts in the market, with the latest target price of SGD0.60. This implies a small upside of ~5.2% from SGD0.57.
That said, RH might be a good investment to hold for the following reasons:
- Their niche on Cleanroom Gloves still doing well
- High return on asset of 13.3% compared to its peers’ average of 4.5%.
- Copious cash that is sitting around and they can deploy anytime soon or just pay out increased dividends
- CEO owns over 50% stake in the firm!
Furthermore, Riverstone is trading at a P/E ratio of 8.9x, relatively lower compared to its historical average of 12.2 times.
This could be a good chance to hold a company that has a strong cash position at a cheap valuation.
#3 Far East Hospitality Trust
Coming in 3rd on this list is actually a REIT – Far East Hospitality Trust (FEHT) with a quick ratio of 9.4 times.
FEHT is a hospitality real estate investment trust with investments mainly in hotels and serviced residences.
Its notable properties include Oasia Hotel Downtown, Rendezvous Hotel Singapore, Orchard Rendezvous Hotel, and Adina Apartments Singapore Orchard.
FEHT’s revenue has been pretty stable in the last 3 years, registering an average annual revenue of SGD84.3 million.
Meanwhile, its profit is at its highest in 2022 at SGD203.8 million as it sold Village Residence, Clarke Quay.
In the market, most analysts have FEHT at a BUY call, with a target price of around SGD0.73 to SGD0.80. This translates to a maximum upside of 37.9% from the share price of SGD0.58.
FEHT could be a worthy company to look for the following factors:
- Solid dividend yield of 5.0%.
- High return on asset of 7.8% compared to its peers’ average of 3.9%.
- Established market position of hotels in Singapore.
- Hospitality Trusts are at the limelight now that tourism is on a good start
FEHT is trading at a cheap P/B of 0.6x, slightly lower than peers’ average of 0.7x. Furthermore, distribution yields have been pretty strong at a range of 4.5% to 8.1% in the last 5 years.
#4 Bukit Sembawang Estates
Bukit Sembawang Estates (BSE) comes in 4th on this list with a quick ratio of 9.0 times.
It was originally a rubber company in the first half of the 1900s but diversified into a property developer.
Its main developments include 8 St Thomas, Skyline Residences, Paterson Suites, Fraser Residence Orchard, and Luxus Hills.
BSE’s financial performance has been solid during the pandemic, with 2021 being the strongest year with a revenue of SGD582.6 million.
Since then, revenue has been down to SGD289.5 million in 2022 on a lack of new developments at the moment.
Profits have been the highest at SGD189.4 million in 2021, before dropping to SGD82.9 million in 2022.
BSE could be worth taking a good look at for the following reasons:
- Established reputation as a property developer in Singapore.
- Huge landbank booked as historical cost!
- Steady return on asset of 2.5% compared to its peers’ average of 1.7%.
- Quite recession-proof with a low beta of 0.44.
Hence, BSE is currently at a high price-to-earnings ratio of 25.3 times, compared to the sector’s average of 8.2 times.
However, don’t let this fool you. Its price-to-book ratio is low at 0.7 times compared to its historical average of 0.9 times, which suggests that it’s undervalued compared to its book value.
Last but not least, it offers a decent 4.0% dividend yield at the time of writing.
Conclusion
While it’s not a sure thing that a recession is coming this year, it would be wise to just be prepared in the meantime.
We hope that the above 4 stocks can give you a good starting point to find firms with strong cash positions. Remember to stay vigilant and keep an eye out for such companies to weather these uncertain times.
