5 Singapore stocks that may benefit from a travel bubble

2021-04-04     drwealth
5 Singapore stocks that may benefit from a travel bubble

If you have been following the news, you would have heard of the ongoing talks for travel bubbles with Australia and Taiwan. This is exciting especially for those who are yearning to travel. While the talks are still at the early stages, the possibility of a travel bubble happening is rather high as countries continue to vaccinate their population. At its current pace, Singapore should have vaccinated some 80% of its population by end of September, which is enough to achieve herd immunity.

As an investor, you might have asked yourself, which business would benefit from the lift in restrictions. Today, I will share with you 5 listed companies that I believe could benefit from the travel bubble.

SATS (SGX: S58)

With a travel bubble, we would expect more flights in and out of Singapore. As a ground handling and in-flight catering service provider at Singapore Changi Airport, SATS would be one of the direct beneficiaries of a travel bubble.

2020 had hit the company hard, with its revenue decreasing by more than 50% in the last 3 quarters. However, by the end of this year, we could see a recovery of its revenue especially with SATS’ growth in its non-aviation sectors.

What I like about SATS is that even during the pandemic, they continued to upskill their workers and used the opportunity to accelerate their business transformations by exploring new avenues such as a digital integrated supply chain that will enable end to end traceability for food products, sustainable low touch food packaging, and the use of smart sensors. These are signs that the company is forward-looking and has a good management team behind it.

Along with SATS’ strong balance sheets, I am confident it could recover back to its pre-covid days.

At the current share price of S$4.31, we could expect a forward dividend yield of 4% for a stable company (assuming dividend payout returns to the previous level at 19 cents per share). That is not accounting for any possible capital gains from the increase in share price, though with the recent run-up, the upside is quite limited now.

Frasers Hospitality Trust (SGX: ACV)

Frasers Hospitality Trust (FHT) is the first global hotel and serviced residence trust to be listed on SGX in 2014, comprising of Frasers Hospitality REIT and Frasers Hospitality Business Trust.

Currently, this REIT has 15 properties spread across 9 cities in Asia, Australia, and Europe. Taking into account the net property income from the financial year 2020, 63% of the total Net Property Income (NPI) came from Singapore and Australia where a travel bubble is being discussed.

During the pandemic, the chain has worked closely with the government in helping returning residents to serve their quarantines at FHT’s hotels. This is the reason why FHT was able to keep its occupancy level for its Singapore and Australia properties above zero, allowing it to receive new revenue streams to cushion the impact of the pandemic. Moving forward, as the economy starts to return to normal, FHT will have to shift back from its quarantine business to its normal one.

This would be possible if the talks are successful and a travel bubble between Singapore and Australia is formed. A rise in the number of travelers for business and leisure between Singapore and Australia could boost FHT occupancy rates back up.

ComfortDelGro Corporation (SGX: C52)

ComfortDelGro is a land transport company operating over 40,000 taxis, buses, and rental vehicles around the world and it had been severely impacted due to reduced demand as people stayed home.

However, if the travel bubble were to be implemented and with the general population of Singapore vaccinated, we would soon see an uptick of demand for public transportation like trains, bus, and taxis as more people heading out of their house and traveling. Given that Singapore and Australia make up 54.8% and 18.9% of ComfortDelGro’s revenue in 2020, a travel bubble would be a likely boost for its business.

Looking at the Profit/Loss breakdown, we could see the main drag to its business in 2020 was its Public Transportation Services which had reduced earnings by S$98.8 million and Taxi segment by S$168.6 million. Both of these segments would benefit from the travel bubble, as such I have a strong belief that ComfortDelGro would recover with this arrangement.

Currently, Comfortdelgro is trading at S$1.72 which when compared to the pre-covid level is at a 40% discount. At such valuation, if you believe that Comfortdelgro would return to its pre covid days, this is a good turnaround stock to buy into.

Parkway Life REIT (SGX: C2PU)

Parkway Life REIT is one of Asia’s largest listed healthcare REITs.  As of 19 March 2021, the REIT has a total of 53 properties located in Singapore, Malaysia, and Japan. In Singapore, it owns well know hospitals like Elizabeth Hospital, Gleneagles Hospital, and Parkway East Hospital. For its Japanese properties, it is mainly private nursing homes.

Despite the pandemic, Parkway Life REIT was able to increase its revenue and has announced an increase in dividend payout. As a result, its full-year DPU grew by 4.5% year on year to 13.79 cents. The reason for this increase was due to contributions from 3 recently acquired nursing rehabilitation facilities in Japan, the appreciation of the Japanese yen, and higher rent from the hospitals in Singapore.

With the stable income stream supported by regular rental revision, defensive long-term lease structure, and diversified portfolio of properties, this REIT is for investors looking for a safe REIT play.

Given that Parkway Life REIT’s gross revenue from Singapore accounts for 57.4% of the total, if the travel bubble is implemented, it could further boost Parkway Life REIT revenue as such arrangement would open the door to medical tourism again.

Before you invest in this stock, do review on its valuation as it has run up quite a bit recently. At its current share price, the dividend yield is only 2.62%.

Capitaland Integrated Commercial Trust (SGX: C38U)

Capitaland Integrated Commercial Trust was recently formed from the merger between Capitaland Mall and Capitaland Commercial Trust. As such, this REIT now owns 11 retail, 8 office assets, and 5 integrated developments predominantly in Singapore.

Covid-19 has hit this REIT quite badly due to the rental rebate it had to extend to its tenants. This has resulted in CICT’s Net Property Income to drop 8.1% year on year.

However, that could soon be a thing of the past. Shopper traffic is starting to recover back to its pre covid levels as the government ease up on restrictions. Together with a travel bubble, I believe that it could boost the shopper traffic of the REIT malls back to pre-covid level gradually.

In addition to the increase in shopper traffic, a travel bubble could also boost its office rental as these places would be used more frequently to facilitate exchanges between business partners.

At the current share price, CICT is yielding 3.22% dividends.

Conclusion

And there you go, 5 Singapore stocks which I believe could benefit from a travel bubble – SATS, Frasers Hospitality Trust, ComfortDelGro, Parkway Life REIT and Capitaland Integrated Commercial Trust.

As I have only touched on the surface of each of these businesses, I recommend you do a more in-depth look at their business before deciding any actions.

Nonetheless, I hope these stocks provide a good starting point for you to explore some Singapore stocks.

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