While Covid still rages on, the economic ramifications due to loss of tourism demand is visibly painful to Singapore. Hotels, restaurants and the transportation industries are suffering from a loss in revenue,. Hence in my view, the opening of Singapore borders for the recreational tourist will be in the very near future (by early 2021). This is due to the small and undeveloped domestic tourist segment our country has.
So how am I positioning myself? Below are two investing themes I have:
1. Air Travel for tourism will resume soon
Yes, this will definitely happen. It is only a matter of when. For this, I think it will be soon (likely 1Q2021). The main beneficiaries are airline stocks and its ancillary services. For me, I am evaluating companies with a low leveraged balance sheet. This is because while air travel will resume, it is unlikely we will see business as usual, but "business is 3/4 as usual".
I am not thinking of hotels for now because Singapore's hotel business is fragmented with multiple listed companies (Far East, Hong Fok, Hiap Hoe, CDL, Fraser); while the airline component has only a few dominant companies with little competitors (SATS, SIA Engineering, CAO)
2. GLCs will give dividends at a higher payout ratio
Due to Covid, governments across the world have brought out budget stimulus and run big budget deficits. With the need to refill their coffers, I expect governments to send hints to its GLCs to give more dividends so that it flows into the state's budget revenue. Hence starting from 2022, I expect dividends will resume at "business as usual" rates for GLCs when business has not reached usual levels. While businesses volume will not pick up and hence EPS are lower than pre Covid levels, GLCs will be increasing their payout ratio to help their parent state.
Building on these 2 points, I have started scouting on the SGX for companies that fit the two ideas. I have divested Silverlake Axis as the price has run up to 33 cents. I plan to use the proceeds for deployment into counters which fit the 2 ideas.
<Invested in CAO>