Sunday, 8 February 2015

Daughters Are Generally Prettier Than Mothers

There are a couple of mother companies and child subsidiaries listed on the Singapore Exchange (SGX). For the sake of this blog post, let's call the mother companies "Mothers" and the child subsidiaries "Daughters". Generally, are Mothers or Daughters prettier?

For the measure of beauty, let's not use price as the yardstick, as beauty is often in the eyes of the beholder. To value investors, beauty means a low price while to growth investors, beauty means a rising price. Instead, we turn to more objective measures of beauty that both value and growth investors can agree on, namely, Return on Equity (ROE), Debt/Equity (D/E) ratio and dividend yield. The statistics of the Mothers and Daughters for the latest Financial Year up to Sep 2014 are listed in the table below. Notice that the banking families are missing from this table, as their operating characteristics are quite different from non-banking companies.

Stock Family Status ROE D/E Yield
ComfortDelgro CD Mother 12.2% 28.9% 2.4%
SBS Transit CD Daughter 3.2% 102.8% 0.9%
Vicom CD Daughter 22.0% 0.0% 3.5%
Chuan Hup CH Mother 5.8% 0.0% 3.6%
CH Offshore CH Daughter 10.5% 0.0% 8.8%
PCI CH Daughter 6.8% 0.0% 23.5%
GP Ind GP Mother -3.0% 49.7% 5.0%
GP Bat GP Daughter -28.5% 49.1% 1.1%
Guocoland Guoco Mother 11.2% 170.4% 2.8%
GuocoLeisure Guoco Daughter 3.2% 28.8% 2.1%
Jardine Matheson Jardine Mother 8.5% 26.4% 2.2%
Jardine Strategic Jardine Daughter 5.5% 24.9% 0.7%
Jardine C&C Jardine Daughter 21.5% 54.4% 2.6%
Dairy Farm Jardine Daughter 39.1% 6.6% 2.6%
Hongkong Land Jardine Daughter 4.4% 16.5% 2.3%
Mandarin Oriental Jardine Daughter 9.7% 79.9% 4.2%
Keppel Corp Keppel Mother 19.0% 51.9% 4.5%
Keppel Land Keppel Daughter 12.7% 55.5% 2.9%
Keppel T&T Keppel Daughter 13.4% 91.7% 1.8%
K1 Venture Keppel Daughter 4.9% 0.0% 26.6%
Pacific Andes PA Mother 8.5% 96.8% 0.0%
China Fish PA Daughter 5.1% 100.3% 0.0%
SembCorp Ind SC Mother 15.5% 29.1% 4.0%
SembCorp Mar SC Daughter 20.7% 27.3% 4.2%
SIA SIA Mother 2.7% 5.6% 3.8%
SIA Engr SIA Daughter 19.4% 1.6% 6.0%
SATS SIA Daughter 12.6% 7.5% 4.2%
Tiger Air SIA Daughter -80.8% 129.2% 0.0%
UE UE Mother 8.5% 114.3% 2.2%
UE E&C UE Daughter 24.8% 11.1% 5.6%
Average (Mother)

8.9% 57.3% 3.0%
Average (Daughter)

6.5% 39.4% 5.2%
Median (Mother)

8.5% 39.4% 3.2%
Median (Daughter)

10.1% 26.1% 2.7%
Difference (Average)

-2.4% 18.0% 2.1%
Difference (Median)

1.6% 13.3% -0.5%
On average, Daughters' ROE are 2.4% lower than that of Mothers'. This is due primarily to Tiger Air's ROE of -80.8% dragging down the Daughters' ROE. The average D/E ratio of Daughters is better than that of Mothers by 18.0% while the average dividend yield of Daughters is better than that of Mothers by 2.1%. The higher dividend yield of Daughters is due to both PCI and K1 Venture declaring larger-than-usual dividends. 

To exclude the impact of such outliers on the average figures, let's review the median figures instead. The Daughters' ROE is better than the Mothers' ROE by 1.6% while the Daughters' D/E ratio is better than the Mothers' D/E ratio by 13.3%. Only in the dividend yield did the Daughters lose out to Mothers by 0.5%. Thus, generally speaking, Daughters are prettier than Mothers on the SGX.

However, the general trend does not hold across all families. If we look at the individual families, we can see that Mothers are prettier than Daughters in some families while the reverse happens in other families. In yet other families, the results are quite mixed. Families in which the Mother is generally prettier than the Daughters include the GP, Keppel and Pacific Andes families, while families in which the Daughters are generally prettier than the Mother include the Chuan Hup and UE families. Families in which the results are mixed include the ComfortDelgro, Guocoland, Jardine, SembCorp and SIA families. For the SIA family, if Tiger Air was excluded, the Daughters would generally be prettier than the Mother.

Generally speaking, if the Mother is well-run, the Daughter(s) are also usually well-run. Good genes and strict family discipline do get passed down to the Daughters. This is why when a well-run Mother spins off a Daughter, the Daughter is usually a good deal. We must thank all the Mothers for raising good Daughters. Thus, my wish is for all well-run Mothers to let their Daughters have a public life (i.e. SGX listing) of their own, rather than keeping them forever hidden in the family. Lest we forget, some of the Mothers on the above list are themselves Daughters of the GrandMother (i.e. Temasek Holdings). Let's hope that that the wise old GrandMother would be willing to listen to the pleads of sincere young men eager to date her many GrandDaughters hidden in the family ;)

P.S. This is the usual section for declaring my vested interests in the above-mentioned stocks. In line with the theme of this blog post, here is the declaration of my interests: I am currently dating 2 Mothers (Keppel Corp and Sembcorp Ind) and 2 Daughters (CH Offshore and UE E&C). Coincidently, both Daughters (and Capitaland's daughter, CapitaMalls Asia last year) have been the subject of a marriage proposal by richer suitors. In all 3 cases, I have rejected the separation and held out for a higher separation fee. Unfortunately, I was not successful in 2 of the cases and have/ will be formally separated by way of a separation notice. The remaining case is still subject to negotiation. If you are wondering why I am usually the party that gets dumped, that is because my girlfriends are pretty ;) That is usually the case when the girlfriend is pretty and the boyfriend (i.e. me) is not rich. Sigh...

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  1. LOL, Boring investor,

    You should change your nick, this is post is humorous..

    Do you notice those with higher yields are all "daughters"?

    Because daughters are expected to "xiao jin" mothers when time is to come, otherwise, why raise the children? Only doting mother is Sembcorp Industries, but I think the 7% is a bit... "wrong", O and G mothers are doting mothers it seems, Keppel is another one

    If you are going for yield, look for daughters.

    1. Hi Sillyinvestor, you are not a silly investor either ;) I'll consider changing my nick when you change yours!

      Yes, Daughters seem to be a better deal than Mothers.