Maybe its the trip to vivo that inspire me to write this. Maybe its the forumers post on Challenger that got me thinking. I dunno its which but aside from FJ, Banquet i have actually study retailers in detail.
I pmed ghchua on some random opinions that i have on challenger (ghchua if you see this and are not comfortable, pls tell me, i will take it down. It looks quite general to me.):
just went to vivo, saw the challenger stall there. do you think that stall will make a significant impact on revenue? i know margins are low, but i some how have this idea tat based on the number of stalls they have (not many), an increase of one that has a high catchment of visitors will have a bigger possibility of adding significant revenue to the bottomline. what do you think?
I like Challenger and obviously I am a shareholder. I had even used my CPF OA funds to invest in it. Its dividend yield beats CPF OA interest rate hands down.
Yes, retail business is not really high margin, especially when you deal with stuff like computer retail where there are cheaper alternatives like Sim Lim. But do remember that Challenger offers more than Sim Lim. The customer service, the “all in one shop” concept etc. And they also provide after-sales service like computer repair, laptop repair etc. One can also sign up for internet access with one of the internet service provider in their store.
I think Challenger had been very careful not to open too many stores at one time. Which is why you can see them sustaining their high dividend payout since listing. I think they will do well with the new store, but not to the extent that it can give it a big profit growth. I see Challenger as a slow and steady counter, and with a nice dividend yield to reward one for holding its shares.
I am into this company for long term to reap its rewards.
Like what bochap feels, there is something uncomfortable when you keep paying out more than your eps. im alright with that, as long as its within manageable means of your free cashflow. however courts seems to be paying more than that. how sustainable is that? (though they dun have much debt)
they have a similar model to food junction in terms of retailing. not expanding out of their means. but their product base is different from that of FJ. A downturn could hit them hard.
Yes, Courts seem to be paying more dividends that what they can handle, simply because they went into Thailand. If they had waited for a while, I am sure they can sustain their dividends quite well.
The cash flow of Challenger had been good since listing. If you look at the annual report, their cash generated from operations had been positive. A downturn will hit the retail sector, and of course stocks will suffer. Even the most defensive one will also go down. That is the risk of investing in stocks right? You can’t have the cake and eat it.
Anyway, I don’t avoid stocks just because I think that the economy might suffer a downturn. As long as you believe in the long term, stocks in general will go up and company will make money, then you will do ok. The key is really, as I’ve said many times before, to have a diversified portfolio and prepare to invest more during a downturn.
That is the best way to invest in stocks I feel.
thanks for the comments. it has been helpful. i think what you made abt thinking long term is valid but the question is when it comes to retailing do you think companies like popular, courts and challenger have long term potential? To be truthful i cant seem to examine that objectively.
If you take Challenger out of the equation, the other two had been here for quite some time. They are focused on being here for the long run. Yes, these companies might not be able to give you double digit kind of growth year in year out. But as you can see, they are trying to do expand their business here and overseas. Popular had gone into the Greater China market, while Courts is also doing likewise in Thailand.
Retailers do have a part to play in S’pore’s economic growth. Retail business had been here for quite some time. I can’t see it going off in the near future. Each company do have a niche area, and it is up to them to execute it correctly in years to come.
If you ask me, I have more confident in these retailers rather than companies like Chartered, which is more prone to electronics cycle downturn.
I thank him for the valuable exchange. I still have my reservations about challenger going forward. I have not looked into Courts SP but it would seem that the risks for Challenger is greater due to their product range and the fact that their revenue depends on their mega stall and 2 super stall (which i believe one is about to close down). Being a guy who is surrounded by SLKs (sim lim kid), its hard to drill to them any value that you get from shopping at challenger. They lambast me that you will be a carrot head to buy anything from there.
Am i late into Challenger? i think not. it hasn’t got expensive before. fluctuating around this price range. we will se how this one goes.