If you are familiar with the investment philosophies of the Oracle of Omaha, Warren Buffett, you will know that one of his key criteria is finding companies with a ‘strong economic moat’.

But what exactly is a ‘strong economic moat’? It describes a company’s ability to sustain a competitive edge over its competitors, ensuring the protection of its long-term profits and market share.

In this post, you will find 5 Singapore-listed companies that, in my view, possess a ‘strong economic moat’:

1. Singapore Exchange Limited (SGX: S68)

Singapore Exchange Limited, or SGX for short, is Singapore’s only stock exchange where companies can list their shares for investors to buy and sell – hence it has a moat here.

Headquartered in Singapore, SGX is Asia’s most international exchange, with offices in 19 cities, and an international network across 27 cities.

For the latest financial year ended 30 June 2024 (i.e., FY2024), its revenue was up by 3.1% to S$1.23 billon, mainly driven by higher revenues from Currencies and Commodities (due to increased volumes in commodity derivatives and OTC FX transactions, iron ore derivatives, as well as in USD/CNH FX futures contracts), as well as from Platform and Others (due to an increase in market data revenue, connectivity revenue, and in indices and other revenue), partially offset by lower revenue from Equities – Cash (from lower listing revenue, as well as trading and clearing revenue) and Equities – Derivatives (from lower trading and clearing revenue, as well as in its treasury and other revenue).

Net profit attributable to shareholders also increased by 4.7% to S$597.6m.

Finally, in terms of dividend payouts, SGX is one of the few Singapore-listed companies that have continued to pay out a dividend once every quarter. For FY2024, a dividend payout of 8.5 cents/share was paid out in the 1st 3 quarters, and a dividend payout of 9.0 cents/share was paid out in the 4th quarter. In the coming financial year, SGX will be paying out a dividend of 9.0 cents/share every quarter.

2. NetLink NBN Trust (SGX: CJLU)

NetLink NBN Trust operates Singapore’s Nationwide Broadband Network (or NBN for short), which forms the backbone of the country’s internet infrastructure. This extensive infrastructure investment and regulatory barriers create high entry costs for potential competitors, and this establishes the company as a natural monopoly.

For the latest full year ended 31 March 2024 (i.e. FY2024), its revenue inched up by 1.9% to S$411.3 million, due to higher revenue reported across most service categories with residential connection revenue increasing by S$3.3 million due to higher residential connections, and installation-related revenue up by S$2.3 million from higher residential service activations and outdoor Non-Building Address Point installations.

However, its net profit was down by 5.5% to S$103.2 million due to lower EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) , higher net finance costs, along with higher depreciation and amortisation.

Distribution payout to unitholders was up by 1.1% to $0.0530/unit.

3. Vicom Limited (SGX: WJP)

Vehicle owners in Singapore will be familiar with the Vicom Limited, where you send your vehicle for inspection once every 2 years (if your vehicle is under 10 years of age, otherwise it will be once every year).

The company is Singapore’s leading provider in inspection and technical testing services, where it offers a comprehensive range of inspection and testing services in vehicle and non-vehicle testing fields including mechanical, biochemical, civil engineering, and non-destructive testing.

For the latest full year ended 31 December 2023 (i.e., FY2023), Vicom’s revenue went up by 3.3% to S$111.9 million, with its net profit attributable to shareholders also improving by 5.4% to S$27.6 million.

A dividend payout of S$0.055/share – comprising of an interim payout of S$0.0275/share, and a final payout of S$0.0275/share.

4. DBS Group Holdings Limited (SGX: D05)

I’m pretty sure most of you have a savings account with the largest bank in Singapore – DBS Group Holdings Limited. Currently, the Singapore-headquartered bank is also the largest in Southeast Asia by assets.

DBS had a record breaking year for the latest full year ended 31 December 2023 (i.e., FY2023) – where its total income jumped by 22.3% to $20.2 billion (contributed by a 24.7% growth in its net interest income to S$13.6 billion, 9.5% improvement in its net fee & commission income to S$3.4 billion [contributed by a 22% increase in its card fees to a record of $1.04 billion from higher spending], as well as a 27.7% jump in its other non-interest income to S$3.2 billion [as treasury customer sales reached a record]).

Its net profit attributable to shareholders rose by 22.8% to S$10.1 billion – a new record of the bank. The same can also be said for its return on equity for the year, at 18.0%.

While dividend payout for FY2023 saw a 4% decline to S$1.92/share, but it was because of a special dividend payout of S$0.50/share declared in the final quarter last year – stripping that out, DBS’ dividend payout saw a 28% improvement.

Barring unforeseen circumstances, the bank will be paying out a quarterly dividend of S$0.54/share in FY2024.

5. Singapore Telecommunications Limited (SGX: Z74)

From an investor factsheet in March 2023 (you can check it out here), Singapore Telecommunications Limited, or SingTel for short, has a good market share in the mobile and fibre broadband market in Singapore, with 45.6% and 43.1% of market share respectively.

On top of Singapore, some of the other countries which the communications technology group have a business presence in include Australia (under Optus), India (under Bharti Airtel), Indonesia (under Telkomsel), Thailand (under AIS), and the Philippines (under Globe).

For the latest full year ended 31 March 2024 (i.e., FY2024), SingTel’s total revenue dipped by 3.4% to S$14.1 billion, due to the absence of contributions from Trustwave (which was sold in January 2024), lower contributions from SingTel (due to lower enterprise and legacy carriage especially voice, partially offset by higher mobile roaming and IoT connectivity).

Net profit tumbled by 64.3% to S$795 million as a result of an exceptional loss of S$1.47 billion as the company incurred non-cash impairment charges on goodwill and Optus Enterprise’s fixed network assets.

Dividend for FY2024 amounted to S$0.15/share (comprising an interim payout of S$0.052/share, and a final payout of S$0.098/share), a 52% increase compared to last year.

Closing Thoughts

Do you agree that the five companies mentioned above possess a ‘strong economic moat’?

While this is an important criterion for selecting investments, it shouldn’t be the only one. Other factors to consider include historical financial performance and dividend payouts (ensuring they are on an upward trend), and debt profile (making sure it’s not overly leveraged, especially in the current high-interest rate environment), among others.

With that, I have come to the end of this article. I hope you found the information useful. Remember, this post is not a recommendation to buy any of the companies listed. You should always do your own due diligence before making any investment decisions.

Disclaimer: At the time of writing, I am a shareholder of DBS Group Holdings Limited.

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