In comparison to the previous year where 390 winners from the PLC500 Ranking reported a combined profit of S$25.42 billion and turnover of S$186.18 billion, this year’s 403 PLC500 Ranked companies recorded a combined profit of S$25.94 billion out of a combined turnover of S$214.12 billion. 

The remarkable improvement in financial performance of Public Listed Companies in this year’s PLC500 Ranking was also reflected in the DP Credit Ratings of these companies. 

DP Credit Rating, a proven model that measures the Probability of Default (PD), is derived based on a rating model designed for companies incorporated in Singapore and takes into account the performance of 6 broad risk categories: Profitability, Capital Structure, Liquidity, Activity, Growth and Size. Companies are graded on a credit rating scale of DP1 to DP8 where DP1 denotes the lowest PD of less than 0.1% and DP8 signals a high default risk of more than 14.0%. Based on the DP Credit Rating, companies can be classified into 3 risk categories: Investment Grade (DP1 – DP4), High Yield (DP5 – DP6), and High Risk (DP7 – DP8).

Table 1: Breakdown of PLC500 Ranking winners by DP Credit Rating 

In addition to delivering outstanding results in terms of turnover and profit, this year’s PLC500 Ranking winners also possess stronger credit profile with lower default risk (See Table 1). In fact, this year’s PLC500 Ranking witnessed a significant jump in the number of investment grade companies (DP1 – DP4) from 24.4% to 44.6%, and a double growth in the number of DP4-rated companies from 16.1% to 32.0%.

Noticeably, the Communications/Transport/Storage sector produced the highest number of investment grade companies at 66.7%, as compared to 34.8% in 2006. With the strengthening of the global economy and increasing air and sea traffic, the transport and communications sector has enjoyed strong growth over the last three years with its Gross Domestic Product (GDP) increasing by 10.4% in 2004; 4.2% in 2005; and 4.3% in 2006. 

Singapore Airlines Limited, Singapore Telecommunications Limited, and Neptune Orient Lines Limited, who emerged in the top 3 positions in this year’s PLC500 Ranking are some of the companies that have demonstrated that they are not only strong in turnover, but also in the management of all aspects of their financial health to qualify as investment grade companies. Singapore Airlines Limited (SIA), for example, has clearly illustrated its strong financial health with a 11.1% growth in turnover to report S$13.34 billion and net profit margin of 9.8% during its financial year ending 31 March 2006. With the increase in share capital to S$1.2 billion, the Group possesses strong Shareholders’ Equity of $12.3 billion as at FY06. During the year in review, the airline has spread its wings further to Abu Dhabi, Hyderabad, Karachi, Lahore and Moscow, while increasing frequencies to Adelaide, Bangalore, Beijing, Guangzhou, Ho Chi Minh City, Hong Kong, Kolkata, Penang, Perth, and Taiwan. 

PLC500 ranked companies from the Retail sector have also illustrated much improved credit risk profile with 61.1% emerging as investment grade companies, a 107.82% jump from the previous year. Led by increased sales volume resulting from higher tourist arrivals and local consumer spending, and the timely investment from property developers to rejuvenate new shopping experience in the wake of economic recovery, the retail sector has also turned in a stronger financial performance in 2006 with total turnover increasing from $3.04 billion to $3.64 billion. Osim International Limited (OSIM), an investment grade company with over 1,100 outlets in more than 360 cities over 28 countries in Asia, Australia, Africa, the Middle East, United Kingdom and North America, has illustrated its strong financial standing with turnover growing 51.3% to S$502.5 million and net profit attributable to shareholders leaping 52.7% to $46.7 million during the financial year ended 31 December 2005. With the acquisition of majority stake in Global Active Limited and US-based Brookstone Inc., OSIM has strategically expanded its global platform to project its healthy lifestyle business, especially with the introduction of best selling OSIM products to all of Brookstone’s 304 outlets. 

In addition to the Communications/Transport/Storage and Retail sector, the Holdings, Manufacturing and Service sectors have also reported an increased number of investment grade companies and lesser High Risk companies in this year’s PLC500 Ranking. In fact, the Services and Manufacturing sectors have posted significant increases of 138.5% and 101.3% respectively in number of investment grade companies as compared to previous year.

After years in the doldrums, the local construction industry has reported a quarter-on-quarter growth of 4.9% in Gross Domestic Product (GDP) in 4Q2005. The once troubled industry appears to be slowly but surely getting back on its feet with a year-on-year GDP growth of 2.9% as of 4Q2006. The recovery of this industry is also reflected in the increase in investment grade PLC500 ranked construction companies; 20.0% are in the investment grade as compared to 12.5% last year. One such company is Low Keng Huat (Singapore) Limited, ranked 224 in the 2007 PLC500 Ranking. Being accorded with an investment grade rating is further testament to the company’s strong financial backing with low default risk which has enabled it to undertake large-scale General Building projects with unlimited tender sum including the development and construction of up-market condominiums such as Domain 21 at Delta Rd, and the 36-storey Regency Suites with a spa theme at Kim Tian Road. 

The performance of public listed companies is an important catalyst for the growth and injection of foreign investment into the Singapore stock market. While most equity investors place a keener interest on a public listed company’s turnover and profit which determine the dividends payout and returns on equity, the ability of the company to strike a balance in generating good returns while maintaining a healthy liquidity and capital structure is equally important for the long-term sustainability of the company. This year’s cohort of PLC500 companies are to be applauded for their ability to generate strong turnover while achieving an improved credit profile. 

Article Contributed By DP Information Group
www.dpgroup.sg