2 Stocks That Can Give you a Perfect CNY Reunion

2021-02-25     thesmartinvestor
2 Stocks That Can Give you a Perfect CNY Reunion

Lunar New Year is a time for celebration and relaxation.

The 15th day of the New Year is also known as Yuan Xiao Jie or first night festival.

Traditionally, a second reunion dinner is supposed to be held to celebrate the first full moon of the next year.

The practice of travelling long distances to be with family reminds us of the importance of family ties, even as the pandemic threatens to divide the human race.

As we usher in the Year of the Ox, there has been more good news on the vaccine front.

A large real-world study of the Pfizer (NYSE: PFE) COVID-19 vaccine shows that it is highly effective at preventing the disease.

Johnson and Johnson (NYSE: JNJ) has also come up with its one-shot vaccine that displayed a 66% efficacy rate, adding to the growing number of available vaccines.

With real-world efficacy confirmed and a long list of vaccine candidates, the major bottleneck now appears to be logistical issues.

If all goes well, this Year of the Ox may see bullish times returning once the pandemic is brought under control.

Here are two stocks that remind us of the importance of family.

Sheng Siong Group Ltd (SGX: OV8)

Sheng Siong is one of the largest hypermarket chains in Singapore.

The group operates a total of 63 grocery chain stores around Singapore that are mostly located in heartland areas.

Sheng Siong had a humble beginning, starting as a small provision shop located in Ang Mo Kio.

It was founded by three brothers: Lim Hock Eng, Lim Hock Chee and Lim Hock Leng in 1985 and went for a public listing in 2011.

Since 2010, Sheng Siong has nearly tripled its number of stores from 22 to the current 63, with the opening of new stores being a key driver of growth for the group.

The pandemic resulted in a surge in demand for household items and fresh food as more people telecommuted and studied from home.

Because of this, Sheng Siong reported a 40.6% year on year jump in revenue to S$1.4 billion.

Gross profit increased by 43.1% year on year as gross margin improved slightly to 27.4% due to a higher mix of fresh goods sold and a higher volume of house brand products sold.

Net profit surged by nearly 84% year on year to S$139.1 million.

Operating cash flow more than doubled year on year to S$274.1 million due to the strong profit growth.

Coupled with lower capital expenditures, free cash flow quadrupled from S$63.7 million to S$257 million.

The group declared a final dividend of S$0.03, taking the full-year 2020 dividend to S$0.065, an increase of 83% year on year compared to the S$0.0355 paid out in 2019.

Sheng Siong will continue with its strategy of opening new outlets in Singapore to propel growth onwards.

Haw Par Corporation Ltd (SGX: H02)

Haw Par is a conglomerate that owns four major divisions: healthcare, leisure, property, and investments.

The group traces its roots back to the 19th century where two brothers, Aw Boon Haw and Aw Boon Par, took over the business from their father Aw Chu Kin after he passed on.

Together, they began producing and marketing a healing ointment now branded under the famous trademark of “Tiger Balm”.

After a series of mishaps, and with the company floundering, it was eventually bought over by veteran banker Wee Cho Yaw of United Overseas Bank Ltd (SGX: U11), or UOB, in 1978.

Fast forward to today, and Wee Cho Yaw remains the chairman of Haw Par, while his sons, Wee Ee-Chao and Wee Ee Lim, fill the positions of deputy chairman and CEO, respectively.

The pandemic wreaked significant damage to Haw Par as sporting events were cancelled and movement was curtailed, thus crimping demand for Tiger Balm’s pain patches, salves and ointments.

Group revenue fell 54.5% year on year but net profit fell by a gentler 34.3% year on year due to a higher share of profit from associates and a big drop in tax expense.

Tiger Balm’s revenue fell by 58.5% year on year and its segment margin shrivelled from 33.4% in 2019 to just 17.4% in 2020.

Despite the sharp fall in profits, Haw Par still maintained its final dividend at S$0.15, in line with what was declared and paid last year.

The group still managed to churn out a free cash flow of around S$17.5 million and continued to receive a dividend income of S$98 million from its investments in UOB and UOL Group Ltd (SGX: U14).

When borders eventually reopen and life goes back to normal, the strength of Tiger Balm’s brand should enable revenue and profit to rebound sharply for Haw Par.

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.

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