SPECIAL REPORT

3 STOCKS I WOULD BUY + BONUS: 6 BLUE CHIPS AT 10-YEAR LOW MARKET CRASH SPECIAL REPORT APRIL 2020

CONTENTS

Chapter 1: After The Market Crash. Thinking Beyond This Crisis

Chapter 2: 6 Blue Chips Trading at 10-Year Lows

Chapter 3: 3 Stocks I Would Buy

INTRODUCTION

Welcome to a special report by The Smart Investor.

The world is in turmoil. We have been hit by a pandemic that is affecting our lives as we know it.

As countries resort to tough measures such as restricting air travel and safe-distancing rules to contain the coronavirus, the world's economies have been badly hit.

The US stock market has seen its swiftest crash ever into a bear market, and economies around the world are adapting to a new reality.

The Dow Jones Industrial Average (INDEXDJX: .DJI), or DJIA, has fallen almost 26% in a matter of weeks.

Singapore has not been spared. At time of writing, our own (SGX: ^STI) is down over 25% year-to-date, with stocks heading deeper into bear market territory.

PAGE 1 MARKET CRASH SPECIAL REPORT APRIL 2020 Chapter One: After The Market Crash. Thinking Beyond This Crisis

As Smart Investors, we need to think past the present and look towards the future. There is no way around it.

The short term measures that Governments all over the world have put in place will hurt. But if companies come out stronger, it could bode well for us investors in the long run.

After all, investing is a long-term endeavour and cannot be measured in weeks or months.

What doesn’t kill us makes us stronger.

In the meantime, our advice to readers remains the same: pace your purchases and ensure you have adequate cash inflow to sustain you through this difficult period.

Keep yourself and loved one safe, and we will all get through these tough times unscathed.

In this special report, we will start by identifying 6 blue chip stocks that are at a 10-year low.

Investors need to decide if they are justified to trade at such levels, or if the market is unjustly punishing them.

We will end our report with 3 listed stocks that one of our analysts feels would suit his own portfolio.

Before we get started, please remember some basic investing rules….

1. Have an emergency fund ready

Simply said, an emergency fund is a sum of money that you set aside for rainy days. The key here is to park these funds in a place you can access when you need it most.

The situation today is a good reminder of why that fund is important.

2. Don’t use any cash you need for the next five years to invest.

Any cash that you need to use in the next five years should NOT be in stocks. Period.

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3. Do not pour all your money into the market at one go.

While it may seem like a lot has happened, it’s important to remember that it’s only been three months since the coronavirus spread around the world.

Pace yourself when it comes to investing. Allow time for companies to report their earnings next quarter or semi-annual earnings, and assess the business again.

Ultimately, our goal as Smart Investors should stay the same, regardless of what the market throws at us, focusing less on stocks that have fallen the most, and instead aiming always for the best companies that we can find.

Chapter Two: 6 Blue Chips Trading at 10-Year Lows

It’s not every day that we see prominent, blue-chip companies trading at depressed valuations.

With Covid-19 ravaging stock markets around the world, many quality companies have been sold down to multi-year lows.

We reiterate: Investors need to remember that even during a crisis, they need to be discerning.

Not everything cheap represents a bargain.

Indeed, some stocks are cheap for a reason.

In this chapter, we cover six blue-chip companies whose share prices are hitting 10-year lows.

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1. Land Holdings Ltd (SGX: H78)

Hongkong Land Holdings Limited, or HKL, is a major property investment, management and development group. The group owns and manages more than 85,000 square metres of prime office and luxury retail property in Asian cities such as , Hong Kong, Beijing and Jakarta.

Sentiment in Hong Kong took a big hit last year due to protests and social unrest which broke out in June. Just as the protests seem to have died down, Covid-19 reared its ugly head, depressing sentiment even further.

HKL has a strong and stable investment properties division that collects steady rental income. The vacancy rate may inch up a little during this tough period, but cash flows should remain predictable.

However, the group also has a retail property division that has been hit badly by the protests, and now Covid-19. Average net rent has fallen year on year and vacancy is expected to increase as tenants suffer increased financial stress.

Investors who are looking at a longer-term picture can afford to be a little more optimistic. HKL’s property portfolio consists of prime properties that should hold their value, even during a crisis.

Moreover, the group has just committed to a purchase of a 23.1-hectare mixed-use site in Shanghai, China. This land will be used for the development of Grade-A offices, retail, residential and hotel properties, and is expected to be completed by 2027.

You can read our analyst’s write up on Hong Kong Land at the links below:

3 Reasons to be Optimistic for Holdings Limited’s Share Price https://thesmartinvestor.com.sg/2-reasons-to-be-pessimistic-for-hongkong-land-holdings- limiteds-share-price/

2 Reasons to Be Pessimistic for Hongkong Land Holdings Limited’s Share Price https://thesmartinvestor.com.sg/2-reasons-to-be-pessimistic-for-hongkong-land-holdings- limiteds-share-price/

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2. Dairy Farm International (SGX: D01)

Dairy Farm International Holdings Ltd, or DFI, is a Pan-Asian retailer with operations in Singapore, Malaysia, Indonesia, Hong Kong and China.

DFI’s retail operations come in several different formats: supermarkets, hypermarkets, health and beauty, convenience stores. DFI’s brands, namely Cold Storage, Giant, 7-11, Guardian Health and Beauty, Wellcome, and IKEA, should be recognizable to most shoppers.

The conglomerate operates a range of retail formats, including hypermarkets, supermarkets, convenience stores, health and beauty outlets, and food and beverage (F&B) outlets.

However, the retailer had fallen on tough times in recent years. Its hypermarket format, in particular, has struggled.

In response, the group announced a transformation plan in the fiscal year 2018 (FY2018) that led to a significant impairment charge and additional expenses incurred to shut under performing stores to realign its business.

The group’s share price has hit a 10-year low of US$3.58 in March, even as the group continues to execute on its transformation plan. This has been partly due to the beaten- down sentiment impacting both China and Hong Kong. Pessimism also reigns due to the Covid-19 situation

DFI’s fiscal year 2019 earnings were better than expected, with an improvement in grocery retailing. The group also kept its total annual dividend constant at US$0.21. At today’s share price of US$4.46, it offers a trailing dividend yield of around 4.7%.

You can read our analyst’s write up on Dairy Farm here: 5 Things You Should Know About Dairy Farm’s Full-Year 2019 Earnings Report https://thesmartinvestor.com.sg/5-things-you-should-know-about-dairy-farms-full-year- 2019-earnings-report-2/

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3. (SGX: Z74)

Singapore Telecommunications Limited, or Singtel, is one of the three largest telecommunication companies (telcos) in Singapore.

The group’s share price has fallen to $2.27, and only during the previous Global Financial Crisis in 2008 did Singtel trade lower.

With competition heating up in the telco space due to the impending entrance of a fourth telco, TPG Telecom, Singtel has been suffering from declining average revenue per user (ARPU). Prepaid and post-paid ARPU declined by 7.2% and 11.4% year-on-year, respectively.

Though its third-quarter fiscal year 2020 revenue dipped by only 5% year-on-year, net profit after tax slumped by 23.8% year-on-year due to a drastic year-on-year decline in the share of results from associates and joint ventures of 57.2%.

Singtel’s associate, Bharti Airtel, was also hit with a massive S$5.38 billion fine by the Supreme Court on how the Government’s share of revenue is computed.

These troubles have pushed Singtel’s shares to its cheapest level in a decade. However, investors should be mindful that these challenges may persist unless Singtel devises a strategy to tackle them head-on.

4. (SGX: T39) Singapore Press Holdings, or SPH, is a leading media organisation whose core business is the publishing of newspapers, magazines and books in both print and digital editions.

Over the last decade, the internet and smartphones have increased in popularity, resulting in more and more people going online to consume news and media. The headwinds have resulted in falling revenues at SPH’s media division.

For the first quarter of the fiscal year 2020, the media division’s sales fell by 13.6% year-on- year to S$140 million. The division’s profitability plunged by nearly 77% year-on-year to just S$7.5 million.

To arrest this decline, management has been aggressively expanding into both aged care assets and purpose-built student accommodation (PBSA) assets. These assets are recession- resistant and should hold up well due to a growing ageing population.

However, investors should note that these assets are not contributing meaningfully to SPH’s top and bottom line yet.

Meanwhile, SPH’s share price continues to hit a new 10-year low, and last traded around S$1.67.

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5. Industries Ltd (SGX: U96)

SembCorp Industries Limited, or SCI, is a leading energy, marine and urban development group.

The group has an energy portfolio of over 12,600 MW, has total assets of over S$23 billion (as of 31 December 2019) and employs over 7,000 employees.

SCI’s share price has tumbled to a 10-year low of S$1.64, down 29% year-to-date. Even during the depths of the Global Financial Crisis, the group traded above the S$2.00 mark.

The key reason for the steady decline in SCI’s share price has been its deteriorating business and financial performance.

Revenue was S$10.9 billion back in the fiscal year 2014 (FY 2014), with a net profit of S$801 million. Five years later, in FY 2018, revenue stood at S$11.7 billion but net profit was just S$347 million. FY 2019 saw revenue tumbling 18% year on year to S$9.6 billion, with net profit declining 29% year on year to S$247 million. The decline came about due to the poor performance of its utilities and marine divisions.

Dividends have also been slashed drastically since FY 2014, when the company paid out a total of S$0.16 for the year., In FY 2019, dividends plunged to just S$0.05. SCI’s trailing 12- month dividend yield is 3%.

6. Ltd (SGX: G13) Genting Singapore owns and operates the Resorts World integrated resort (IR).The group is in the business of developing, managing and operating IR destinations that include gaming, hospitality, leisure and entertainment facilities.

Genting Singapore’s share price has tumbled 29% year-to-date to close at S$0.66, which is also a ten-year low. The Covid-19 restrictions are expected to severely impact Genting Singapore’s business as it operates a casino, hotels and entertainment facilities.

With tourism almost at a standstill and fewer locals able to venture out, Genting Singapore’s hospitality segment will likely see plummeting revenues and cash flows. The group does have a five-year expansion plan in hand, though.

Genting Singapore announced back in April 2019 that it will expand its IR property gross floor area by around 50%, as well as add new hotel rooms and an enhanced water promenade, among other features.

Of course, the success of this expansion hinges on whether the pandemic has been brought under control by then.Genting is one of the companies that stand to benefit from the recently-announced Resilience Budget. These additional funds will help to defray some of its expenses and assist its cash flow

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Chapter Three: 3 Stocks I Would Buy

Let's move beyond stocks that are merely cheap, to those that we think are worth a closer look.

After all, we don’t let a good bear market go to waste.

With share prices battered to multi-year lows due to the Covid-19 outbreak, many attractive investment opportunities have emerged.

That said, an investor also has to be discerning when looking out for suitable companies to park their money in.

There is no telling how long this pandemic will last.

At this point in time, we selected these stocks based on two important criteria.

The first is that the company should have a strong competitive position within its industry, along with a sturdy balance sheet.

This will ensure it can weather through the crisis without needing to raise capital or collapsing.

The second criteria would be the payment of regular dividends. The company in question should be able to continue to pay dividends through the crisis.

Let's take a look at 3 companies that we feel fit both criteria.

1. (SGX: S68)

Singapore Exchange Limited, or SGX, is Singapore’s sole stock exchange operator. The bourse operator provides a platform for the buying and selling of securities such as equities, fixed income and derivatives.

With its monopolistic position, investors need not fear that SGX will collapse as the stock exchange is an integral part of Singapore’s financial system.

Furthermore, the group held S$725 million in cash as of 31 December 2019 and has no debt on its balance sheet.

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The group’s derivatives division also saw record trading volumes in February due to rising concern over the impact of Covid-19 on the global economy. This drove increased demand for risk management solutions offered by SGX.

SGX pays a quarterly dividend of S$0.075, and full-year dividend amounts to S$0.30 for a 3.3% dividend yield.

2. OCBC Ltd (SGX: O39)

OCBC should be a household name to most investors, being one of the three big banks in Singapore.

The group offers a broad array of banking services ranging from commercial banking to investment banking, asset management and insurance.

The bank’s key markets are Singapore, Malaysia, Indonesia and Greater China, and all show promising long-term growth.OCBC reported a record net profit after tax of S$4.87 billion for the fiscal year 2019 and bumped up its full-year dividend to S$0.53.

Covid-19 will adversely impact the bank by raising its credit costs, but the bank should be resilient enough to withstand the damage. OCBC has a strong track record of weathering crises such as the Global Financial Crisis in 2008-2009 and the oil price crash in 2015-2016.

The 12-month trailing dividend yield for OCBC is around 6.2%.

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3. VICOM Limited (SGX: V01)

VICOM Limited is a premier testing and inspection centre. The group has two main divisions — vehicle inspection and non-vehicle inspection. The vehicle inspection division commands a market share of above 70% in Singapore.

The Singapore Government has mandated that the vehicle growth rate should be reduced to zero per cent to limit the total number of cars on the island.

Despite that, VICOM’s Annual Report 2019 states that 41,000 private car owners renewed their Certificates of Entitlements (COEs) that year. That would mean that older cars would have to be inspected more often — once a year rather than bi-annually.

VICOM has also invested in an Israeli company called Fortellix, which develops solutions to address challenges in autonomous vehicle (AV) testing and compliance. This will pave the way for the group to become a leading player in AV testing in future.

The Government has also announced in October 2019 that all personal mobility devices (PMDs) would have to go through mandatory inspection every two years, starting April 2022.

The vehicle inspection arm has more than enough initiatives to keep it busy. But, the non- vehicle inspection division may face challenging times due to a potential worldwide recession.

However, the group has a strong balance sheet with S$92.8 million in cash and no debt (as at end-2019). This should allow VICOM to survive and emerge stronger after the recession has passed.

The group’s trailing 12-month dividend yield stands at 5.4%.

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CONCLUSION

You don’t have to be glued to the news feeds or spending your precious days scouring the headlines to know that the world - and therefore the stock market - is brimming with risk and volatility.

But for us, at The Smart Investor, investing can be straightforward.

We look for companies that will be around for the next 10, 20 or even 30 years from now.

We are investing for our retirement.

In other words, we will be investing for the next 10 or 20 years, or more.

The companies should have strong cash flows that can reward us with dividends in both good times and bad.

And we want to bring this simple plan to you.

Our team have been scouring the market to find these exact types of companies, digging into their financial statements to separate what they consider to be the cream of the crop...

We've put together a plan of action for our future....

And we would like to teach you how to put a plan together.

We'll teach you by showing you exactly how we are building our portfolio for our future.

You can learn more about what we do at The Smart Dividend Portfolio by clicking the button below.

Click HERE

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