Analysing a company - The importance of R&D

Just ended my economics class awhile ago and there were some interesting discussions today. Some of the discussions include

1) the problems of ageing population in singapore, 

2) the restriction of foreign workers by increasing foreign worker levy

3) why singaporeans have to retire later as retirement age is constantly increasing.

All these are big topics and it has been debated for the past few years in our homeland, singapore.

So what has this got to do with our analysis of companies to invest? I think as our economy becomes more competitive and we face a shortage of manpower due to ageing population, companies need to restructure the way they do their business in order to stay competitive.

The restriction on foreign workers has impacted businesses in singapore already especially in the f&b sector, the services sector and construction sector etc. Why is the government imposing a higher levy on each foreign worker hired? Won't this increase the cost of the company and result in lower profits?

Yes, it will impact firms greatly especially those that rely heavily on cheap workers. The purpose of this policy is to increase the productivity of firms especially SMEs. In a way, it forces the company to use technology and rely less on workers. If you study economics, you'll know that for a developed country like singapore,  we cannot increase economic growth substantially by increasing capital or labour as developed countries faced a phenomenon called diminishing rate of returns. Developed countries need to grow by increasing technological change which improves productivity.  That is the direction that the singapore government hopes to steer the country into.

Technological growth is costly. Firms who can outgrow competitors are mostly those who invest in research and development (R&D). If you look at most of the successful firms in the world,  you'll realise that most of them invest greatly in R&D. Google and samsung are such examples. The amount they invest in R&D is enormous.

How about firms in Singapore?  Food and beverage firms face higher manpower cost due to tighter foreign labour policies. Breadtalk for example has invested in a new office building which they just moved into. Their central kitchen is located there together with their offices and they have a fully automated production line for their bakery in that building too. This helps to save cost for them greatly. The new building also house their R&D department which they are focusing a lot into it.

On the other hand, if a company does not constantly innovate and change the way it does its business, it may lose out to its competitors and even big market leaders like Nokia which was considered a giant in the telecom industry, is facing huge losses year after year.

We can have many ways of analysing a company and I think one important factor to look at is how much the company is investing in R&D. This will help the company to continue growing and have a sustainable business model.

Life of poor and rich people

Saw a fellow blogger AK71's post titled "have money also must have heart". This reminded me of a video I saw on youtibe showing the difference between how the rich and poor live their lives.

In the midst of striving to be rich, let's not forget to have a heart for the poor.

How rising interest rate affects the housing loan you pay? [Guest Contribution]

Interest rates are starting to rise and it affects the amount of loan that you pay for your housing mortgages. But how much will it affect you?

Look at the simple illustration below:

A Singaporean Guide to home buying fees and charges

Click Here for PDF

Inforgraphics provided by imoney.sg , a price comparison website dedicated to helping Singaporeans make the best use of your money.

Like my Facebook page to receive instant market updates and notifications of new articles. SG Young Investment is dedicated in helping you to achieve financial freedom.

You can also Subscribe to SG Young Investment by Email

Company in focus - Select Group

Select group is a leading food service provider in Singapore. They started out with catering as their main business and branching out over the years to include restaurants, fast food chains, desert chains, F&B management services, event catering etc.

Below shows the select group of companies under them:

This company caught my attention as their financials reflect positively on their management capabilities. Some of their brands are quite successful and i'll describe my experiences of what i think of them.

Firstly, Texas Chicken is a well known brand in Singapore now. When they first started out, i was sceptical that they could survive with KFC and Popeyes already in Singapore. Later on, i've been hearing my colleagues, friends and relatives talk about texas chicken. The comments were good and most of them were saying texas chicken sells better chicken than KFC. It was then i decided to try it out and it was unbelievable. Their chicken were different from KFC indeed. More juicy inside and even their breast meat was not so dry. Even my foreigner friends were commenting positively on Texas chicken too. Indeed if you look into their financials, Texas chicken has seen an increase in revenue from 8.131 Million in 2011 to 11.094 Million in 2012.

Secondly, they have Stamford as their catering business. This caterer name i've seen a few times before and i realised my company has been engaging their services for many of our events. I remembered during my army days, SAF also engages Stamford catering. With big institutions as their clients, their business is relatively stable.

Thirdly, they have this restaurant called Peach Garden. This is the restaurant that contributes most to their revenues. Peach Garden made up 30% of their revenue in 2012.  I've not been to this restaurant before but have heard people saying about it. They specialise in Chinese fine dining.

Now moving on to their financials.

Income statement
Currency in Millions in SGD	2009	2010	2011	2012
Revenue	61.6	75.5	101.5	116
Net Income	0.3	-1.7	3.2	4.2

Balance Sheet
Cash and Equivalents	8.1	6.7	6.6	12.5
Long Term Debt	2.4	3.2	0.6	1.6

Cash flow
Cash from operations	4.2	6.5	8.8	17.3
Capital Expenditure	-5.9	-9.8	-4.4	-7.1

Revenue and Income has been increasing consistently for the past 4 years. Their balance sheet is healthy with strong cash and low debt. Cash flow has been increasing consistently also. If you look at some of the financial ratios, it is quite promising for the company.

Return on Equity: 25.03%

Return on Assets: 6.28%

PER is at 13.4x which is lower compared to similar companies like breadtalk (PER 21.5x) and Old Chang Kee (PER 15.4x)

Dividend yield is fairly attractive at 6.41% at the current price of 0.39. 

I have bought some shares of this company as of this week. I think their management have been actively expanding the business and it is good for the group. They are also planning to introduce two new culinary offers this year and expand each of their businesses to 20 or more outlets. 

Its share price has risen from 0.35 to the highest of 0.40 and closing at 0.39 today. This is about 10% increase this week. 

For more information on thier business, you can visit their website: www.select.com.sg

*Please read disclaimer at the bottom of this blog*

*All financial information adapted from investing.businessweek.com and Select group annual report 2012. 

*Picture adapted from Select Group corporate website.

Cheapest nasi briyani in Singapore

Today I managed to have the cheapest nasi briyani I've ever had in my life. A plate of nasi briyani with one curry chicken drumstick, egg and vegetable cost only $1.90!!! Nasi briyani easily cost more than $5 elsewhere.

If youre thinking where to get it, you'll be disappointed coz its only available in school's canteen. Just lucky today I was doing some work at a secondary school in Singapore so got a chance to eat cheap food.
This make me believe that high and increasing food stall rental is the cause of our more expensive food prices here locally. School food stalls mostly have minimal or zero rental charges thus they can survive selling at cheap prices.

Choosing the right housing loan with imoney

Buying a house is a major decision in life. There are so many packages in the market from different banks offering different interest rates mortgages. Which one should you choose?

There is this website I discovered which offers a good comparison of the different housing loan interest rates packages offered by the various banks in Singapore. You can check out this website imoney.sg 

They also offer comparisons of saving deposits interest rates, time deposit rates, credit cards information and much more.

Banks in their list include DBS, POSB, OCBC, HSBC, OUB, Citibank, standard chartered bank, RHB, ANZ, Hong Leong, Maybank, CIMB, Bank Of China.

You can see thier service is quite comprehensive and best of all its free to use. There are articles there for your reading pleasure too.

Do check it out today. Click here: imoney.sg

My Goals

I've posted a new page to list down my goals. You can click on the "my goals" tab at the top of this blog to view it if you're interested.

A summary of my targets:

$100000 by age 28, Year 2016

$300000 by age 32, Year 2020

$600000 by age 36, Year 2024

$1 Million by age 42, Year 2028

It's always a dream to achieve 1 million. I'm not a person who spends a lot and i live a simple life. Why do i need 1 million? The reason is with 1 million, i can invest it and create a modest passive income stream to reach financial freedom. Another reason is investing 1 million to become 2 million is a 100% return. Thus, to create the next million will take me lesser time maybe 5 years if i see the next bear market. 10k to 20k is 100%. 1 million to 2 million is also 100%. This is the reason why the rich get richer. 

I've always been taught not to go after money and material things because money will not make you happy. This i agree with it and thus i think achieving 1 million is not about going after money or material things but seeking for a financially free life. I've seen people complain about their jobs, complain that they don't like their bosses and also complain that they still have to work at a old age and cannot retire. If i do not want to be like that when i'm older, then i should plan for my life now. I believe that only by achieving financial freedom can we then truly live a life not being a slave of money or getting caught in the rat race. It is then can we truly enjoy life in itself. This does not mean i will stop working when i achieve financial freedom but rather i have a choice to do the things i love. 

I've listed down the details of how i can reach each target. Click here to see it: My Goals