Why investors should back listed family-linked businesses such as those of the Wee family

I have a long-term investment horizon. I am generally a hoarder who adds to my equities holdings when I have time and/or spare cash. And I prune my holdings far too infrequently.

It’s convenient to hold stocks via the Central Depository Account or a nominee account with a bank. I need not fear losing physical share certificates, and dividends are generally paid in a timely manner, directly into one’s bank account, with hardly any need for monitoring on my part.

I favour Singapore equities because I am based here, comfortable with the local regulatory framework, and prefer Singapore-dollar denominated investments as I like the local currency. 

The Singapore stock market suits yield-driven investors like myself. I hope that dividend income from equities can supplement other income sources, such as payouts under CPF Life, when I retire.

Given my preference to invest in larger-cap names, I have lots of exposure to Temasek-linked entities. Such entities make up nearly half the constituents of the benchmark Straits Times Index. 

I am comfortable investing in groups in which Temasek is a big shareholder, as it would be counting on these entities delivering strong and sustainable performance so that it can contribute effectively to the government’s coffers.  

Wee family entities

Beyond Temasek-linked names, the rest of my Singapore-focused equities investments are largely in groups which have families as major shareholders. 

For example, my family invests in entities in which the family of banker Wee Cho Yaw is a major shareholder. Examples include banking group UOB , conglomerate Haw Par Corporation , and property groups UOL Group and Singapore Land Group (SingLand).

A major reason for my confidence in the Wee stable of companies is the family has plenty of skin in the game. 

Having worked in investment banking, I am wary of traders who take risky positions using other people’s money. If bets succeed, these traders receive big bonuses. If bets fail, other people bear the losses.

With the Wee stable of companies, I trust that business sustainability truly matters, as the family may seek to grow wealth to transfer to younger generations. 

A parallel can be drawn with successive generations of political leaders here, who seek to grow Singapore in order to hand over a stronger nation to future generations.   

With much wealth tied up in their listed holdings, I trust that Wee family members, in whatever capacities, are vigilant about risk management, long-term strategic planning and financial prudence.

Also, I can rely on the Wee-owned companies to pay steady and sustainable dividends, as the family benefits when shareholders are rewarded.

For sure, entities such as Haw Par, UOL and SingLand can do much more to unlock value. Based on the companies’ share prices as at Oct 9 and net asset value (NAV) as at end-June, Haw Par, UOL and SingLand traded at a discount to NAV of 36 per cent, 49 per cent and 65 per cent respectively.

Take Haw Par. Might a corporate restructuring of the group whose business comprises healthcare, leisure, property and equities investments help unlock value? 

Haw Par holds sizeable stakes in UOB and UOL, worth a combined value of around S$2.6 billion as at end-June, and which accounted for about 73 per cent of Haw Par’s total assets. Haw Par may be an inefficient vehicle to hold the said shares.

Boards of all listed entities should constantly work to unlock shareholder value.

Nonetheless, I am a patient investor who draws assurance from a business growing its NAV and profits, and which generates good cash flow over time, even if its share price is persistently below book value.  

Over a 10-year period, UOL grew the interest of the shareholders from S$6.14 billion in 2012 to S$10.64 billion in 2022. 

Throughout this period, the group’s gearing ratio was generally low – often below 0.3 times. Also, UOL paid a fairly stable dividend per share (DPS) over the period, with total DPS for 2022 of S$0.18, up from S$0.15 for 2021. 

Family members in executive roles

With listed groups where families hold big stakes, investors may be concerned over the suitability of family members to lead the business. 

Wee Ee Cheong had huge shoes to fill when he succeeded his father, Cho Yaw, as UOB’s chief executive officer (CEO) in 2007. 

Fast forward to today, UOB has done well with Ee Cheong as CEO. He led the group through the global financial crisis and the Covid-19 pandemic, and was named Businessman of the Year at the 37th Singapore Business Awards in 2022. 

UOB is embarking on exciting growth plans – the group forked out almost S$5 billion to buy Citigroup’s consumer banking assets in Indonesia, Malaysia, Thailand and Vietnam to scale up its retail franchise in Asean.

Perhaps some family members are the most suitable business leaders. Ee Cheong would have gained from being mentored in banking and business by his father. 

At property group City Developments Limited , Kwek Leng Beng learnt from his father Kwek Hong Png. Today, Sherman Kwek, as group CEO, can count on the counsel of his father, Leng Beng, who is executive chairman.

Some children of business leaders may have no interest in running a business. Still, it should be unsurprising that many scions of business families thrive in the business world. 

After all, examples abound of successful musicians, artists, sports persons and chefs who got headstarts and took inspiration from parents who are talented and/or passionate in the fields of music, arts, sports and cooking respectively.

There are some downsides to family ownership and involvement in businesses.

If a family feud erupts, business decision-making could slow and a company’s board may need to spend time managing feuding factions. Also, some family members may be ill-suited for the leadership roles that they assume in a listed group.

I envy the opportunities available to those born into prominent and established business families. 

However, family members who run family-linked businesses face pressure to perform. There are legacies to protect, new challenges to conquer, external forces to manage and employees to support.  

I wish storied business families, who helm local listed groups, every success, so investors riding with them can prosper too.