It is no secret that interest rates have risen sharply over the past 18 months.
The US Federal Reserve has embarked on the most aggressive rate hike cycle since April 2022 in its bid to tame inflation.
In Singapore, mortgage rates have also headed up and pushed up loan instalment payments for a wide swath of borrowers.
Investors are also worried about higher rates negatively impacting their stocks as companies must cope with higher finance expenses.
In turn, these higher rates will lead to lower profits and cash flows and could also impact companies’ ability to pay out dividends.
We turn our attention to four stocks that can shrug off these higher rates or take them in their stride.
Sheng Siong Group (SGX: OV8)
Sheng Siong is one of the largest supermarket chains in Singapore with 68 outlets across the island.
The group sells a wide variety of products including chilled and fresh produce, toiletries, and essential household products.
For its fiscal 2023’s first half (1H 2023), the retailer reported a mixed set of results.
Revenue inched up 2% year on year to S$690.5 million while gross profit increased by 3.1% year on year to S$205.1 million.
Net profit, however, dipped by 2.9% year on year as higher utility and staff costs bumped up the group’s total expenses.
Sheng Siong maintained a clean balance sheet with zero debt and cash of S$289 million as of 30 June 2023.
Also, free cash flow jumped by 31.7% year on year to S$72.3 million for 1H 2023.
An interim dividend of S$0.0305 was declared, slightly below the S$0.0315 that was paid out a year ago.
Looking ahead, Sheng Siong will continue with its store expansion strategy by looking out for viable retail space in new and existing HDB estates.
Management also plans to improve the sales mix of higher-margin products and increase the breadth and selection of house brand items.
VICOM Limited (SGX: WJP)
VICOM is a provider of test and inspection services.
The group not only conducts vehicle inspections but also provides a comprehensive range of inspection and testing services in the mechanical, biochemical, and civil engineering fields.
For 1H 2023, VICOM reported a good set of earnings as revenue improved by 4.8% year on year to S$55.9 million.
Operating profit edged up 0.3% year on year to S$16.6 million.
Net profit increased by 6.3% year on year to S$13.9 million.
Like Sheng Siong, VICOM’s balance sheet is also clean with no debt and cash of S$50 million.
The inspection specialist also generated a positive free cash flow of S$8.5 million for 1H 2023.
The group’s interim dividend was reduced from S$0.0332 to S$0.0275 to conserve cash for VICOM’s planned expansion, which includes a major investment in a new test and inspection centre.
Looking ahead, vehicle inspection demand is projected to remain stable but non-vehicle testing could slow down in line with Singapore’s economy.
OCBC Ltd (SGX: O39)
OCBC is Singapore’s second-largest bank and offers a comprehensive range of services to individuals and corporations.
The bank is in a great position to benefit further as the US central bank has stated its intention to continue raising rates and may only cut rates next year if inflation is under control.
Total income climbed 30% year on year to S$6.8 billion as higher rates led to a 48% year-on-year jump in NII to S$4.7 billion.
Net interest margin (NIM) shot up to 2.28% for 1H 2023 from 1.63% a year ago.
OCBC declared an interim dividend of S$0.40, 43% higher than the S$0.28 paid out a year ago.
The bank launched a refreshed logo cum tagline recently and will lean on its four growth pillars of Asian wealth, trade and investment flows, new economy, and sustainability, for further growth.
It also expects to generate S$3 billion in incremental revenue over the next three years with this refreshed strategy.
HRNetGroup Ltd (SGX: CHZ)
HRNetGroup is a leading recruitment and staffing firm with over 900 consultants spread out across 15 Asian cities.
The group owns 13 human resource brands such as HRnetOne, Recruit Express, PeopleSearch, and REForce.
The human resource specialist reported a downbeat set of earnings for 1H 2023.
Revenue fell by 6.2% year on year to S$294.8 million while net profit declined by 18.3% year on year to S$28.3 million.
The weaker performance was attributed to weak hiring sentiment for its professional recruitment division in the face of economic uncertainty.
The good news is that HRNetGroup maintained a clean balance sheet with no debt and S$261.8 million of cash.
The group also generated a positive free cash flow of close to S$20 million for 1H 2023.
An interim dividend of S$0.0187 was declared, down from the S$0.0213 paid out in the prior year.
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Disclosure: Royston Yang owns shares of VICOM.