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It is important to consider diversification when investing in stocks in order to reduce risk exposure. One method is to invest in multiple companies from a variety of industries. Another is to consider companies that are highly diversified from a product, geographic, and operational perspective.
With that, I’ll take a look at two Singapore companies that can provide investors with diversification given they generate revenue and profitability from a number of different regions as well as business units.
A very diverse tech company
First off there’s Singapore Technologies Engineering Ltd (SGX:S63), also known as ST Engineering. It’s a company specialising in a variety of engineering and maintenance services. ST Engineering provides an assortment of engineering services, comprising mainly of four segments: aerospace, electronics, land systems and marine.
The company has continuously reported to be strongly diversified in its revenue streams across these business sectors. That broke down as 39% for aerospace, 32% for electronics, 19% for land systems and 9% for marine in 2018.
The company also has geographic diversity, though it’s not as broad as its product segment diversity. ST Engineering’s Asian business units provided 73% of sales in 2018, with the remainder coming from the US and Europe.
ST Engineering also enjoys revenue diversity. About a third (31%) of the company’s revenue was government defense spending related, giving the company a unique source of sales diversification away from commercial instability. The nature of its engineering business also provides the company recurring revenues, such as maintenance and servicing, in addition to any one-time revenues in manufacturing a product for a customer.
The second stock is Thai Beverage Public Co Ltd (SGX:Y92), better known as ThaiBev, which is a food and beverage company headquartered in Bangkok, Thailand. ThaiBev offers alcoholic and nonalcoholic beverages in its product portfolio along with a variety of food products.
Initially, it was a company known for its alcoholic beverages such as beer (Chang beer) and spirits (Mangkorn Thong), but ThaiBev has since diversified into the non-alcoholic business. Apart from its self-branded beverages such as Oishi and Est Cola, the company also acquired a 29% stake in Singapore food and beverage company, Fraser and Neave (F&N), in 2012.
This further expanded ThaiBev’s nonalcoholic line into Southeast Asian household name products such as F&N’s soft drinks and Magnolia dairy products.
ThaiBev has also been actively entering the food business in recent years, primarily through inorganic growth. For example, in 2017 alone, ThaiBev acquired 252 KFC stores from Yum Restaurants International (Thailand) Co. Ltd. It also acquired 76% of equity interest in Spice of Asia Co. Ltd., which operates Thai restaurants.
These acquisitions also provided more than a quick source of diversification: ThaiBev is able to directly supply its own beverages to these food businesses, allowing it to enjoy synergies in growth.
Look to diversify
There are many ways to diversify your portfolio. As mentioned above, you do not necessarily have to invest in multiple companies to do so. Investing in companies like ST Engineering and ThaiBev – that are committed to growth diversification – indirectly helps in diversifying your portfolio as well.
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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Hong Kong contributor Ray Kee does not own shares in any companies mentioned.