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...

See related blog posts:

• Letter to Today: Review Wave of Delistings on SGX
• Are Investors Short-Changing Themselves Over Privatisation Deals?
• Investors' Guide to Privatisation Deals