The Straits Times Index began its sharp decline starting from mid 2008, dragged down by wave after wave of adverse global economic data.
EVEN THOUGH global demand has contracted sharply since the third quarter of 2008, about two-thirds of SGX-listed companies are still profitable.
Some research houses like Credit Suisse have taken the view that a recovery could come as early as this year, but market sentiment is still anemic. As of yesterday, as many as half of the profitable SGX-listed companies were trading below 5X historic PE.
In fact, valuations are so cheap now: over a hundred stocks on SGX are trading at prices that meet all the following criteria: below 5X historic PE; dividend yield 5% or more; and below book value.
”When earnings outlook is uncertain, investors on the lookout for cheap buys should look at price-to-book and dividend yields in addition to PE,” The Edge Singapore quoted DBS Vickers head of research Janice Chua as saying.
The financial weekly highlighted in a report this week 5 counters widely thought to have good earnings potential but are trading at ‘attractive’ levels. The 5 are:
Pan-United Corp
Pan-United Corp is the leading supplier of basic building materials for Singapore’s construction industry and has an estimated 29% share of the city’s ready-mixed concrete market.
Its dividend yield is a generous 10%. The company had paid 2.8 cents per share for its interim dividend and will pay another 1-cent final dividend for FY08.
FY08 revenues were S$553 million (up 27%) while earnings were S$53 million (up 33%).
Some S$1.07 billion for public land development and S$385.5 million for industrial infrastructure development will be spent from the 2009 Singapore Budget.
What brokers like
Based in Singapore, Pan-United Corp is the best proxy to local government boost to infrastructure spending, according to DBS Vickers analyst Ho Pei Hwa.
DBS Vickers and OCBC Investment Research have buy calls on Pan-United Corp, with price targets of 53 cents and 47 cents respectively.
Epure
Epure's build-operate-transfer project to supply water in Zhejiang. Photo from company website.
Based in China, the water and wastewater treatment solutions provider should get a boost from China's increased spending on water infrastructure.
FY08 revenues were a cool billion yuan (up 47%) while earnings were Rmb 232 million (up 41%).
What brokers like
DBS Vickers has a buy call on Epure with price target of 32 cents while and CIMB has an outperform call with price target 37 cents.
Both brokers have estimated that Epure earnings will increase by more than 10% in FY09.
Boustead Singapore
Boustead provides water and energy infrastructure and real estate solutions and is sitting on order books in excess of S$670 million.
9M09 revenues were S$325 million (up 3.9%) while earnings were S$25.4 million (down 23.7%).
Helmed by the “very capable” Wong Fong Fui, who is best known for returning Gardenia bread maker QAF back to profitability during the 1990s.
Wong bought 313,000 shares in Boustead last week, increasing his stake to almost 32%.
What brokers like
DBS Vickers’ recommendation for Boustead is ‘hold’, with target price at 67 cents.
Its analyst Tan Ai Teng believes Boustead’s strong net cash reserves of S$135 million allows it to make good acquisitions from distressed sellers.
An upcoming property sale in 4Q09 will also add to its cash pile.
ASL Marine
ASL Marine's drydock for repairs.
Photo by Leong Chan Teik.
Photo by Leong Chan Teik.
ASL Marine builds, repairs and charters marine vessels.
1H09 revenues were S$226 million (up 17%) while earnings were S$40 million (up 40%).
What brokers like
Kim Eng has a ‘buy’ call on ASL Marine with a target price at S$1.62.
ASL Marine has had none of the issues that continue to plague the marine sector, such as order cancellation, re-negotiation of contract terms or delayed delivery, according to Kim Eng analyst Rohan Suppiah.
Of the four analysts who cover the stock, 3 have a ‘buy’ call.
UOB Kayhian’s Nancy Wei is an exception. She has a ‘hold’ call and cautions that ASL Marine’s earnings should soften.
Sinotel Technologies
Sinotel is an S-chip providing wireless telecommunications solutions.
Last year, China’s 6 major telecom service providers each with their respective niches in cellular, broadband as well as fixed line services merged into 3 giants that provide all three services.
Sinotel's V-P of Corporate Communications Ben Ng.
Photo by Sim Kih
Photo by Sim Kih
Its 2008 revenues were Rmb 362 million (up 36%) while earnings were Rmb 107 million (up 26%).
The Edge Singapore calls Sinotel a ‘high-risk, high-gain bet’.
What brokers like
All four analysts who cover Sinotel have ‘buy’ calls on it, with target prices ranging from 23 to 43 cents.
At its last closing price of 11.5 cents, Sinotel’s PE was only 1.2X.
The brokers’ price targets imply upside of over 100-200%.
| Stock Price |
Mkt Cap S$m |
Historic PE |
Gross gearing |
Dividend yield |
Cash per |
Price to book |
|
| EPURE | 25 cts | 322.5 | 6.1 | 29.9 % | 2.7 % | 13 cts | 1.1 |
| PAN-UNITED CORP | 38.5 cts | 212.3 | 4.2 | 39.4 % | 9.9 % | 12 cts | 0.8 |
| BOUSTEAD | 44.5 cts | 229.5 | 5.5 | 8.8 % | 9.2 % | 31 cts | 1.4 |
| ASL MARINE | 38.5 cts | 116.0 | 1.8 | 57.8 % | 8.0 % | 30 cts | 0.5 |
| SINOTEL | 11.5 cts | 32.2 | 1.2 | 19.5 % | - | 1.7 cts | 0.4 |
Some counters are even trading at less than 2X earnings and below 0.2X price-to-book. But in the current harsh operating environment, investors should check for caveats to such rock-bottom valuation.
For example, a company may have low cash reserves and high gearing, making it highly vulnerable. Readers may recall Jurong Tech’s sorry example when its bankers pulled the plug.
DBS Vickers believes that a re-rating for many of these companies is unlikely to occur in the near-term until the earnings outlook improves or they take steps to reassure investors of their credibility.
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