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It is important to consider diversification when investing in equities to reduce exposure to risk. One method is to invest in several companies in various sectors. Another solution is to consider companies that are very diversified from a product, geographic and operational point of view.
That said, let's look at two Singaporean companies that can diversify investor investment because they generate revenue and profitability for different regions and business units.
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A very diversified technology company
First of all, there is Singapore Technologies Engineering Ltd (SGX: S63), also known as ST Engineering. It is a company specializing in a variety of engineering and maintenance services. ST Engineering provides a range of engineering services, primarily in four sectors: aerospace, electronics, terrestrial and marine systems.
The company has consistently reported being highly diversified in its revenue streams in these areas of activity. This represented 39% for aerospace, 32% for electronics, 19% for terrestrial systems and 9% for the navy in 2018.
The company also has geographic diversity, although it is not as broad as the diversity of its product segment. The Asian divisions of ST Engineering achieved 73% of sales in 2018, with the rest coming from the United States and Europe.
ST Engineering also enjoys a diversity of revenues. About one-third (31%) of the company's revenues were tied to the government's defense spending, giving it a unique source of sales diversification away from commercial instability. The nature of its engineering activities also provides the company with recurring products, such as maintenance and services, in addition to non-recurring products generated by the manufacture of a product for a customer.
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Diversity of drinks
The second stock is Thai Beverage Public Co Ltd (NASDAQOTH: TBVPF), better known as ThaiBev, is a food and beverage company based in Bangkok, Thailand. ThaiBev offers alcoholic and non-alcoholic beverages in its product portfolio, as well as a variety of food products.
Originally a company known for its alcoholic beverages such as beer (Chang beer) and spirits (Mangkorn Thong), ThaiBev has since diversified into the non-alcoholic beverage sector. In addition to branded beverages such as Oishi and Est Cola, the company also acquired a 29% stake in Singapore's food and beverage company. Fraser and Neave (F & N), in 2012.
This has further expanded ThaiBev's range of non-alcoholic products to well-known brands in Southeast Asia, such as F & N's non-alcoholic beverages and Magnolia dairy products.
ThaiBev has also been active in the food sector in recent years, mainly through inorganic growth. For example, in 2017 alone, ThaiBev acquired 252 KFC stores from Yum Restaurants International (Thailand) Co. Ltd. and also acquired 76% stake 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 benefit from growth synergies.
Seek 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 it. Investing in companies such as ST Engineering and ThaiBev – which are engaged in the diversification of growth – indirectly contributes to the diversification of your portfolio.
A version of the article originally appeared on our Fool Asia website. For more coverage like this, go to Fool.hk.en.
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