1 Simple Number for Understanding 3 Important Areas of SBS Transit Ltd’s Business

SBS Transit Ltd (SGX: S61) operates public bus and rail services in Singapore. The company is a subsidiary of local land transport giantComfortDelGro Corporation Ltd (SGX: C52).

Today we’re digging deep into SBS Transit’s return on equity, or ROE.

## The choice of ROE

We’re using one metric — the return on equity, or ROE — to understand SBS Transit’s business. This financial metric gives investors important insight into a company’s ability to generate a profit using the shareholders’ capital it has.

A ROE of 20% means a company generates 20 cents in profit for every dollar of shareholders’ capital invested. In general, the higher a company’s ROE, the more profitable it is. A high ROE can also be a sign that a company has a high-quality business.

It’s worth noting that the use of high leverage — which increases the financial risk faced by a company — can also increase a company’s ROE.

## Calculating the ROE

The ROE can be calculated using the following formula, which is the way many investors do it:

ROE = Net Profit / Shareholder’s Equity

The metric can also be calculated using a different approach, as shown below:

ROE = Asset Turnover x Net Profit Margin x Leverage Ratio

Calculating a company’s ROE in this way will reveal three important things: How well a company is managing its assets, how efficient it is at turning revenue into profit, and how much financial risk it could be taking on. You canlearn moreabout this formula for the ROE.

With that, let’s turn our attention to the ROE of SBS Transit.

## The actual numbers

Asset turnover measures the efficiency of a company in using its assets to generate revenue. It is calculated by dividing a company’s total revenue by its assets. SBS Transit had total revenue of S\$1.38 billion and total assets of S\$1.06 billion in its fiscal year ended 31 December 2018. This gives it a good asset turnover of 1.30.

The net profit margin measures the percentage of revenue left as profit after deducting all expenses.In 2018, SBS Transit had a low net profit margin of 5.8% given its net profit of S\$80.1 million and revenue of S\$1.38 billion.

Lastly, we have the leverage ratio, calculated by dividing a company’s total assets by equity.Ahigher ratio means a company is funding its assets with more liabilities, resulting in higher risk.In 2018, SBS Transit had total assets and total equity of S\$1.06 billion and S\$498.4 million, respectively, giving it a healthy leverage ratio of 2.13.

When we put all of the numbers together, we arrive at a strong ROE of 16% for SBS Transit for 2018.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore recommends SBS Transit Ltd.

\$SBS Transit(S61.SI)

### Recommended & Related Posts

The Better Dividend Share: SBS Transit Ltd vs. VICOM Limited

Both SBS Transit Ltd (SGX: S61) and VICOM Limited (SGX: V01) are largely owned by land transport giant, ComfortDelGro Corporation Ltd (SGX: C52). Even though both SBS Transit and VICOM are involved in somewhat different business, both of them offer decent dividend yields. However, which could give dividend investors better value? Let’s explore this further.

## Dividend yield

SBS Transit’s share price right now is at S\$4.10, and that gives the company a trailing dividend yield of 3.5%. In comparison, at VICOM’s share price of S\$7.13 currently, it has a trailing dividend yield of 5.2%, excluding any special dividend.

Therefore, in terms of dividend yield alone, VICOM triumphs over SBS Transit.

## Dividend growth rate

The dividend yield tells us what a company has paid over the last 12 months. However, we should also be looking at how the company’s dividends have changed over time, preferably over the last five years or more.

Dividends at SBS Transit have grown at a compound annual growth rate (CAGR) of 53.9% while VICOM’s dividends have climbed at a CAGR of 20.3%, without any special dividends. Including special dividends, VICOM’s dividend CAGR drops to 13.8%.

The following shows SBS Transit’s and VICOM’s total dividend per ordinary share from 2014 to 2018 (purple chart belongs to SBS Transit and blue chart belongs to VICOM):Source: SBS Transit and VICOM 2018 annual reports

In terms of dividend growth over the past five years, SBS Transit has the upper hand over VICOM.

## Dividend payout ratio

Beyond the trailing dividend yield, we should also assess whether a company can maintain or grow its current dividend in the future. To do that, we can compare the company’s earnings to the amount in dividends that it pays out. Companies that have a dividend payout ratio of less than 100% show that there is some room for business slowdowns in the future.

In 2018, SBS Transit had a dividend payout ratio of just 50% while that of VICOM stood at 94%, excluding any special dividend. Including VICOM’s 2018 special dividend, the dividend payout ratio jumps to 116%.

In terms of payout ratio, SBS Transit’s dividend payment looks more sustainable than VICOM’s.

## The Foolish takeaway

Even though VICOM’s dividend yield is much higher than SBS Transit’s, SBS Transit has a far superior dividend growth rate and lower dividend payout ratio than VICOM. Based on the factors above, I conclude that SBS Transit is the more attractive dividend share.

Want to keep reading and learn more from The Motley Fool? There are many important things we think every Singaporean investor should know before jumping into stock picking—and we’ve laid them all out in our eBook, which we think will help you become a Smarter, Happier and Richer investor. You can download the full e-book FREE of charge here

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of SBS Transit Ltd and VICOM Limited. Motley Fool Singapore contributor Sudhan P owns shares in SBS Transit Ltd and VICOM Limited.

\$SBS Transit(S61.SI)

SBS Transit Ltd’s Share Price Was Up By 37% Last Year. Is It a Good Business?

SBS Transit Ltd (SGX: S61) operates public bus and rail services in Singapore, operating mainly in two segments: public transport services (the bus and rail services) and other commercial services (advertising and rental income). SBS Transit is a subsidiary of local land transport giantComfortDelGro Corporation Ltd(SGX: C52).

At the current price of S\$3.60 (at time of writing), the company’s stock is up about 37% in the last 12 months. If SBS Transit has a high-quality business, its current low stock price could be an investment opportunity. There’s no easy way to know if SBS Transit’s business is of high-quality, but a simple metric can help shed some light: return on invested capital (ROIC).

## A brief introduction to the ROIC

In a previousarticle, I explained how ROIC can be used to evaluate the quality of a business.

The simple idea behind the metric is that a business with a higher ROIC requires less capital to generate a profit, and it thus gives investors a higher return per dollar that is invested in the business. High-quality businesses tend to have high ROICs, while the reverse is also true — a low ROIC is often associated with a low-quality business.

You can see how the math works for ROIC in the formula above.

## SBS Transit’s ROIC

The table below shows SBS Transit’s ROIC using numbers from its fiscal year ended 31 December 2018 (FY2018).

Source: SBS Transit’s Financial Statements

In FY2018, SBS Transit generated a ROIC of 14.7%. This means for every dollar of capital invested in the business, SBS Transit earned 14.7 Singapore cents in profit. The company’s ROIC of 14.7% is above the average based on the ROICs of many other companies I have studied in the past. This suggests that SBS Transit has an above-average business.

Click here nowfor yourFREEsubscription toTake StockSingapore, The Motley Fool’s free investing newsletter. Written byDavid Kuo,Take Stock Singaporetells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.

TheMotley Fool’s purpose is to help the world invest, better.Like us on Facebookto keep up-to-date with our latest news and articles.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore recommends SBS Transit Ltd.

\$SBS Transit(S61.SI)

These 3 Blue Chip Stocks Have Grown Dividends By More Than 50% In Last 10 Years

Income investors would ideally like to invest in companies that have sustainable dividends.

Unfortunately, no one can accurately predict the future, which makes estimating the future dividends of a company potentially tricky. One way to help clear up some of the fog would be to look at a company’s history of paying dividends.

Over the past 10 years, the global economy has been through some really rough times, with the great financial crisis being the most jarring episode. It would thus mean that a company that can grow its dividends in the past decade has a business that has some stability and sustainability in the past – and that could be a great starting point for further research.

Here, we will look at three of these companies that have grown their dividends for dividend investors by more than 50% in the last 10 years.

As a quick introduction, Dairy Farm is a conglomerate with four main business segments: Food, Health and Beauty, Home Furnishings, and Restaurants. In Singapore, Dairy Farm is the owner of stores such asGuardian,Cold Storage,Giant Hypermarket,and7-Eleven.

In the last decade, Dairy Farm has grown its dividend per share from US 14 cents in 2008 to US 21 cents in 2017, up by 50% during the period. At a current price of S\$ 9.05 (as of writing), the company is trading at a dividend yield of 2.3%.

The next company on our list is ComfortDelgro Corporation Ltd (SGX: C52).

As a quick introduction, Comfortdelgro is a transport company with operations mainly in Singapore, Australia, the United Kingdom and China. Comfortdelgro did well in growing its dividend in the last decade.

Here are some numbers: dividend per share more than doubled from 5.0 cents in 2008 to 10.4 cents in 2017. In term of percentage, this is up by 108% during the period!

At a current share price of S\$ 2.15 (as of writing), the company is trading at a dividend yield of 4.8%.

The next company is DBS Group Holdings Ltd (SGX: D05) or DBS in short, which is one of the three major banks based out of Singapore.

In the last 10 years, DBS Group grew its dividend per share from 65 cents in 2008 to 143 cents in 2017, up by 120% during the period. One thing that investor should note is that the company paid out a special dividend of 50 cents per share paid in 2017. Nevertheless, DBS Group still grew its dividend by 43% even after excluding the special dividend.

At a current share price of S\$ 23.70 (as of writing), the company is trading at a dividend yield of 6.0% (including special dividend).

Conclusion

Income investors might want to take a look at these companies above due to their track record of growing dividends for dividend investors in the last decade.

\$ComfortDelGro(C52.SI) \$DairyFarm USD(D01.SI) \$SBS Transit(S61.SI) \$VICOM(V01.SI)

The Best-Performing Blue Chip Shares In 2018 (Part 2)

2018 was a challenging year for Singapore investors. TheStraits Times Index(SGX: ^STI), Singapore’s stock market barometer, was down by 9.8% in 2018.

Despite the market decline for the year, there are a number of stocks that delivered positive returns in 2018.

In this series of articles, I will look back into the year and identify six of the index’s biggest winners, as well as six of the largest losers.In this article, I will be covering the winners from the first to third position. The first part of the series can be found here and here.

## The third best performer

In third place is ComfortDelgro Corporation Limited (SGX: C52), a transport company with operations mainly in Singapore, Australia, the United Kingdom, and China. It is also the majority owner of vehicle and non-vehicle testing and inspection outfitVicom Limited(SGX: V01)and bus and rail services operatorSBS Transit Ltd(SGX: S61).

In 2018, Comfortdelgro’s shares climbed by 8.6% in price.

For the first nine months ended 30 September 2018, Comfortdegro delivered a 5.0% year-on-year improvement in revenue. Yet, its profit after tax fell by 6.6% year-on-year mainly as a result of weaker performance in the taxi-related businesses.

Going forward, ComfortDelGro is setting up a US\$100 million corporate venture capital fund to focus on incubation and investments in mobility technologies and solutions which will help complement the parent company’s existing land transport business. The fund will be called ComfortDelGro Capital Partners. Though there is no guarantee that such investments will bear fruits, investors should find some comfort knowing that the management is trying to adapt itself in the new operating environment.

## The second best performer

We’re getting close to the winner now. In fact, second-placed Jardine Matheson Holdings Limited(SGX: J36) is closely related the winner. But before revealing the winner, let’s have a quick look at Jardine Matheson.

Jardine Matheson is a conglomerate with diverse business interests, mainly through its directly-owned subsidiaries and various investments. Its business activities range from properties, supermarkets, motors and many more.

In 2018, Jardine Matheson’s share price was up by 14.5%. In fact, its year-end share price of US\$69.48 is hovering around its peak for the last five years. Moreover, its first six months performance for 2018 was ahead of that of 2017. Both revenue and underlying net profit rose 14% and 7%, respectively, as compared to last year. As such, it’s reasonable to see its share price improving over the same period as well.

## The best performer

Finally, in the first place we have Dairy Farm International HoldingsLtd(SGX: D01), which saw its share price grew by 15.1%. In other words, it outperformed the index by more than 25% in 2018.

For those who are new to the company, Dairy Farm is a conglomerate with four main business segments: Food, Health and Beauty, Home Furnishings, and Restaurants. In Singapore, Dairy Farm is the owner of stores such asGuardian,Cold Storage,Giant Hypermarket,and7-Eleven.In fact, Dairy Farm is a subsidiary of Jardine Strategic Holdings Limited(SGX: J37) , which in turn, is majority owned by Jardine Matheson.

The positive performance in Dairy Farm’s share price is reasonable. For the first half ended 30 June 2018, Dairy Farm reported that sales grew by 8% from a year ago to US\$5.9 billion. Similarly, profit attributable to shareholders was up 6% year-on-year.

\$STI(^STI.IN) \$ComfortDelGro(C52.SI) \$DairyFarm USD(D01.SI) \$JMH USD(J36.SI) \$JSH USD(J37.SI) \$SBS Transit(S61.SI) \$VICOM(V01.SI)

If You Love Dividends, You Should Check Out These 3 Shares

“Ka-ching!”

That’s the sound of dividends rolling into your bank account.

If you love dividends, then you should pay attention to the following three dividend-paying companies. They have the potential to roll more dividends into your bank account for years to come.

### Company #1

The first company to be featured is Micro-Mechanics (Holdings) Ltd (SGX: 5DD). The company produces consumable parts that are needed in the assembling and testing of semiconductors.

Micro-Mechanics has increased its total dividend by 1,150% from S\$0.008 per share in FY2003 (financial year ended 30 June 2003) to S\$0.10 per share in FY2018. The company’s dividend in FY2018 was 81% of its earnings in the year.To know more about the company’s dividends, you can check out a guide here.

Micro-Mechanics could face short-term headwinds, but its long-term prospects look bright. The company shared the following in its latest earnings update:

“As such cyclicality is typical for the semiconductor industry, we prefer to focus on the industry’s long term trends and try not to get side-tracked by short-term variations. We continue to believe the semiconductor industry is poised for a prolonged period of solid growth as chips are becoming increasingly embedded in nearly every aspect of modern life, from today’s smart phones to tomorrow’s driverless cars. Hence, the key to the Group’s success lies in our continuing ability to seize long-term opportunities and correctly identify the initiatives and investments that bring value to our customers.”

If the company can grow its earnings consistently in the future like how it has done in the past, investors should be rewarded with higher dividends in the years ahead. At Micro-Mechanics’ share price of S\$1.67 right now, it has a tasty trailing dividend yield of 6%, including a special dividend of S\$0.01 declared in the fourth quarter of FY2018.

### Company #2

The next company in line is SATS Ltd (SGX: S58), a provider of food solutions and gateway services. The company serves mainly the aviation industry.

Over its past five fiscal years from FY13/14 (fiscal year ended 31 March 2014) to FY17/18, SATS’ dividend has climbed from S\$0.13 per share to S\$0.18 per share, giving an annualised growth rate of 8.5%. The company’s dividend is also well-covered. For example, in FY17/18, the payout ratio (dividend per share as a percentage of earnings per share) was just 76.9%. SATS’ conservative dividend payout ratio, coupled with the favourable tailwindsits businesses enjoy, should allow the company to sustain its dividend in the future.

The following chart shows SATS’ dividend payout in recent history:

Source: SATS FY217/18 earnings presentation

SATS’ share price of S\$4.61 currently gives it atrailing dividend yield of 3.9%.

### Company #3

The third company on the list is SBS Transit Ltd (SGX: S61), which provides public bus and rail services in Singapore.

SBS Transit has grown its dividend by 43.4% annually from S\$0.018 per share in 2013 to S\$0.076 per share in 2017, as shown in the following chart:

Source: SBS Transit 2017 annual report

Can SBS Transit keep its dividend growth streak going? I think so. The company only paid out 50% of its earnings as a dividend in 2017. Also, with the recent transitions to the Bus Contracting Model and New Rail Financing Framework, SBS Transit should be able to generate higher free cash flows in the future to sustain even higher dividend payments. As a case in point, in2018’s second-quarter, SBS Transit hiked its interim dividend by an impressive 59% year-on-year to S\$0.058.

SBS Transit’s share price is currently at S\$2.70, which gives the company a trailing dividend yield of 3.6%.

\$Micro-Mechanics(5DD.SI) \$SATS(S58.SI) \$SBS Transit(S61.SI)