Is SBS Transit Stock a Good Buy Now?
Right now SBS Transit (S61/ SBVV.SI) share price is at SGD$2.62
At this price, SBS Transit is valued at a price-to-book ratio of 1.299 and a trailing distribution yield of 3.02%
With the current valuation, would I invest in it?
Let’s go through it using my 7 steps guide and see how I pick the Best Singapore Dividend Stocks.
As a quick recap, here are the 7 steps I use to pick the best Singapore Dividend Stocks.
- Debt to Equity Ratio
- Dividend Yield
- Dividend payout ratio
- EPS Growth Rate
- Return of Equity (ROE)
- Price-to-Book Ratio
- MOAT
Recommended Read: Warren Buffet’s 5 Characteristics of a Good Dividend Paying Stock
Business Background
SBS Transit is in the transportation sector.
Started in operation in 2003, it is a major transport focus company operating in Singapore.
Business includes:
- Bus Operation
- Rail Operation
Bus Operation
SBS Transit serves 16 of the total 26 bus interchanges and more than 3,000 bus stops.
Rail Operation
Operates in Light Rail Operations (LRT):
- Sengkang
- Punggol
Operates Mass Rapid Transit (MRT) system:
- North-East Line (NEL)
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Debt To Equity Ratio
Check for: Less than 0.5 D/E Ratio
Looking at the latest online data.
SBS Transit have a D/E ratio of 0.13.
This is significantly lower than 0.5.
A lower debt-to-equity ratio indicates the company is not over-leverage and using less debt or, “borrowed money” to finance the company’s operations.
Lower debt means a lower risk of the company defaulting. This is a good sign when we are looking for a low-risk investment.
My Opinion: Pass
Dividend Yield
Check for: More than a 2.5% dividend yield
For the Year 2022, SBS Bus pays a dividend of 0.079 which translates to a dividend yield of 3.02%.
This is slightly higher than my target of 2.5%.
2020, 2021, and 2022 are the year of the pandemic. It is understandable that the company may want to keep more cash in case of need.
Although it is just slightly higher than the risk-free rate (CPF OA Account) of 2.5%. I will probably give it a verdict of pass.
My Opinion: Pass
Dividend Payout Ratio
Check for: Less than 80% dividend payout ratio
At the time of writing, a quick check online shows that the dividend payout ratio for SBS Transit is just 51.35% which is lower than my threshold of 80%.
A low payout ratio means there is potential upside potential for increasing the dividend in the future.
I personally don’t think the payout ratio will really change that much for the next 5 years, as the government just recently announced that they are pushing for more environmental friendly vehicles.
This means, most of the undistributed cash will be reinvested into the business to upgrade the buses.
My Opinion: Pass
EPS Growth Rate
Check for: More than 10% EPS Growth
A constantly growing EPS will be the perfect scenario for a perfect company.
A quick check on online financial data.
The EPS 5 year growth rate is a whopping 10.356%!
This is meet my threshold of 10%
My Opinion: Pass
High Return Of Equity (ROE)
Check for: More than 10% ROE
ROE is one of the most important ratios used by Warren Buffett.
Return on Equity is a profitability ratio that measures the ability of the company to generate income from shareholders’ money (equity). In other words, a higher ROE will mean a higher return for each dollar the shareholder invested in the company.
At the time of writing, the ROE of SBS transit have an ROE of 8.688%.
This is acceptable but below my criteria of 10% ROE.
My Opinion: Pass
Price-to-Book Ratio
Check for: a P/B Ratio of less than 1.8
SBS Transit is a blue chip company with is traded commonly by moms and pops. This means it will be almost impossible for this company to be traded below its book value.
At the time of writing, the current P/B ratio of SBS Transit is 1.299.
This means it is trading at a 29% premium to its book value.
My Opinion: Pass
MOAT
Check for: Not just having a MOAT, but a great MOAT
SBS Transit is a transport service company with a business that is simple to understand.
Serving 16 of 26 total interchanges island-wide, SBS transit is one of the largest bus operators in Singapore.
Operating both MRT and LRT in the North-East of Singapore, SBS Transit is pretty much the only transport operator operating in the North East of Singapore
According to Phil’s book Rule#1 investing, SBS Transit has a strong Toll MOAT. As this company has exclusive control of the marketplace.
My Opinion: Pass
Overall
SBS Transit has a final score of 7/10.
It has low debt and a strong unbeatable MOAT.
However, the price is higher than what I wanted.
Therefore, I will be putting SBS Transit on my watchlist.
Below is how I’ve scored SBS Transit.
| Metrics | Weightage | Score |
|---|---|---|
| Debt to Equity Ratio | High (2) | 2 |
| Dividend Yield | Low (1) | 0.5 |
| Dividend payout ratio | Low (1) | 1 |
| EPS Growth Rate | Low (1) | 1 |
| High Return on Equity (ROE) | Low (1) | 0 |
| Acceptable Price-to-Book Ratio | Low (1) | 0.5 |
| MOAT | Very High (3) | 2 |
| Total | NA | 7 |
Why do I find some metrics more important than others?
There are 3 attributes in a company that Warren Buffett wants in particular:
- Wonderful Company at Fair Price
- Stable & Understandable Business
- Vigilant Leadership in Risk Management
This translate to the following 3 metrics I have on my list:
Thus, for these metrics, I will put a higher weightage on my scoring.
Question…
Would you invest in SBS Transit?
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