Straits Trading eyeing strategic partnerships, continued diversification

STRAITS Trading’s efforts to diversify its investments across areas like resources, property and hospitality have enabled the group to transform its business segments into scalable assets and sustainable growth engines over the years, Eric Teng, chief executive of the company’s subsidiary Straits Developments, said on Wednesday (Oct 5). 

Speaking to Ben Paul, a senior correspondent at The Business Times, during the second Mark to Market ‘Live’ webinar, Teng noted that the company has a three-pronged strategy in place – entering markets that it is familiar with, taking on risk-adjusted investments, as well as partnerships. 

Paul noted that Straits Trading has, over the years, formed partnerships with other groups and relied on collaboration. He cited examples of the company’s partnership Far East Orchard for the hospitality segment, as well as Nikko and UBS for the fund management area. 

The company’s diversification strategy appears to have paid off. Straits Trading posted a net profit of S$673 million for the first half of the year ended June, up from earnings of S$122.6 million in the corresponding year-ago period. The spike in profitability came largely from strong contributions from the real-estate segment, specifically on the back of a net gain from the disposal of the company’s stake in ARA Asset Management to ESR Group. 

Shareholders have also been on the receiving end of sweeter returns. Over the past decade, special dividends have totalled to about S$3.50 per share, said Teng. 

Paul said that Straits Real Estate appears to have become “the main driver” of the group’s earnings; he also noted that Straits Real Estate has investments in several parts of the world – including Australia, South Korea, China, Malaysia and the UK. 

Teng said that over the past 10 years, private equity has become one of the clearest investment options for risk efficiency and solid returns. According to him, Straits Real Estate targets returns of at least 10 per cent over five to seven years in the current environment, up from a range of three to five years previously. 

Despite the wide range of countries, Teng stressed that the group is careful about where it makes investments. In particular, the company looks at factors such as the cash flow of the assets, as well as opportunities for asset enhancement. 

One curveball for the real-estate sector today is high interest rates. Teng said that investors and property developers “can’t run away from high or low interest rates”, but should instead look for opportunities to capture. 

“The challenge for us is obviously at the business level… is that we have to look at our current financing,” he said, adding that the company has put down a certain proportion of its loan at fixed, rather than floating rates. 

The company had said in its latest annual report that the 2020s would be the era of Straits 5.0 – an overarching theme for the company to convert its assets into investment products and platforms for new growth engines. 

Teng said that this refers in part to tokenisation or fractionalisation – the splitting up of ownership of an asset into digital tokens, which allows big-ticket items such as Good Class Bungalows to be owned by a number of investors in small sizes. 

In response to a question from Paul on the relative illiquidity of the company’s shares, Teng said that the issue of the stock being controlled largely by one investor still remains. But the group has taken efforts to change this. 

Over the past three years, Straits Trading has put effort into growing its investor base by “a big amount”. Today, the company has over 6,000 investors – a 60 per cent jump from the investor base of the past. 

Looking ahead, Teng said that the company will continue to focus on capital allocation, as well as opportunities that are able to generate revenue and add value. (See amendment note.)

Amendment note: An earlier version of this article said Straits Trading would continue to focus on capital appreciation. Teng subsequently clarified that he meant capital allocation.

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