It’s natural to feel worried when you read the recent news headlines.
Amid ongoing troubles in the world such as the Russia-Ukraine war and high inflation, Prime Minister Lee Hsien Loong has warned that Singapore could face a potential recession within the next two years.
Dwindling fish stocks in Malaysia and an export ban on chickens have caused prices of both fish and chicken to soar.
A recession may sound scary but is a normal feature of a mature economy.
Singapore, being reliant on external trade, will find it tough to avoid a downturn if other countries experience lower demand for goods and services.
On the investment front, there’s a similar need to ensure your stocks can remain resilient in the face of economic stress.
Such businesses are normally in recession-proof sectors or sell essential goods and services that people need.
Here are three Singapore stocks that you can safely park your money in should Singapore fall into a recession.
Sheng Siong Group Ltd (SGX: OV8)
Sheng Siong is one of the largest supermarket chains in Singapore, operating around 65 outlets around the island.
The group has a wide selection of merchandise including over 1,500 products under 23 house brands that customers can select from.
Sheng Siong is your quintessential grocery store that sells essential goods and necessities that will continue to do well even during a recession.
Revenue for the group increased by 6% year on year for its fiscal 2022’s first quarter (1Q2022), with gross profit rising by 9.8% year on year to S$102.7 million.
The higher revenue was due to a combination of better same-store sales and the opening of new stores, while the gross profit margin improved because of a better sales mix.
Net profit jumped 13.9% year on year to S$35.2 million, and the retailer generated a healthy free cash flow of S$20.1 million.
Management targets to open three to five new stores per year over the next three to five years and two new stores are slated to open in the first half of 2022.
The group also seeks to expand its network of outlets in Singapore in areas where it currently does not have a presence.
Sheng Siong’s China subsidiary is profitable and it plans to increase the selection and types of house brand products to further improve the sales mix.
Singapore Exchange Limited (SGX: S68)
Singapore Exchange Limited, or SGX, is Singapore’s sole stock exchange operator.
The group operates a platform for the buying and selling of a wide variety of securities such as equities, bonds, derivatives, and currencies.
Being Singapore’s sole bourse operator affords the group a natural monopoly that ensures it will do fine even during a downturn.
For its fiscal 2022’s first half (1H2022) earnings, revenue was flat year on year at S$522 million.
However, net profit dipped by 9% year on year to S$219 million due to higher staff costs, absence of government support schemes. and expenses related to the acquisitions of Scientific Beta and BidFX.
However, free cash flow remained healthy at S$240.4 million and SGX kept its interim quarterly dividend constant at S$0.08 per share.
With an annualised dividend of S$0.32 per share, SGX’s trailing dividend yield stands at 3.2%.
Parkway Life REIT (SGX: C2PU)
Parkway Life REIT, or PLife REIT, is a healthcare REIT that owns a total of 56 properties with assets under management of S$2.29 billion as of 31 March 2022.
These comprise three private hospitals in Singapore, 52 nursing homes in Japan, and strata-titled lots/units in a specialist clinic in Malaysia.
Healthcare is the bedrock of any society and will hold strong even during a recession.
The REIT has a great track record of increasing its core distribution per unit (DPU) since 2008, going from S$0.0683 that year to S$0.1408 in 2021.
For its 1Q2022 business update, PLife REIT once again saw revenue and net property income rise by 2.3% and 1.9% year on year, respectively.
Its Singapore hospitals recently renewed its long-term lease and extended it to 31 December 2042 with an option for a further 10-year renewal.
Rents are guaranteed to increase from now till 2025, with a rent review formula in place from 2026.
PLife REIT’s gearing stood at 34.5% as of 31 March 2022 with a very low effective cost of debt of just 0.56%.
With a debt headroom of S$715.6 million before hitting MAS’ statutory limit of 50%, the healthcare REIT still has significant room for acquisitions to further boost its DPU.
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Disclaimer: Royston Yang owns shares of Singapore Exchange Limited.
