Singapore listed Chinese Companies - S Chips

Some of my friends asked me what i think of Singapore listed Chinese Stocks know as S chips, I shall do a brief writeup about my personal views :

Many of the S chips listed in Singapore are now trading at low PE (share price to EPS ratio) or near cash per share because :
1. Despite some signs that the global financial crisis may be over, recent reported financial results remain weak (eg profit continue to decline or margins have not recovered)

2. Confidence were badly shaken due to the accounting scandals or corporate governance issues affecting some S chips

Let’s look at the above 2 points separately.

Point 1 - this is a more general reason which can affect all companies, not just S-chips, so all we have to do is do more homework and analyze the financial results of the companies, and look for signs of recovery. One of the early signals which I use sometimes is look for “sequential” earnings recovery, rather than year-on-year recovery. Sequential means comparing the latest net profit (eg 3Q09) to that 3 months ago (eg 2Q09) and if you see the company profit improving due to better operating performance (rather than forex gains or unusual items like writebacks) than this is the first thing that will get my attention.

Point 2 - i personally think that the entire S-chips sector have been “over-punished” by the actions of a few bad apples. Bear in mind that be it accounting scandals or frauds or corporate governance issues, all these happen to all stock markets, even in Hong Kong and US stock markets. But the interesting part is how the people “react” to it when it happens.

In Hong Kong, when you see certain negative news about the market, the press will just report it (usually in smaller column) and move on. Hong Kong press seldom devote a large section of the newspaper to play up the issue. In Singapore, I saw the press devoting half a page to highlight certain things and continue to highlight these issues for many days. Doing it and over-doing it is a fine line…….. to me hong kong press just do it but singapore press may have over-done it.

If the press over-report certain negative aspects, then it will hit the core of investor confidence, that they will think ALL S-chips are bad and this will bring down the valuations of ALL S-chips.

In Hong Kong and even US, we have seen the press reporting certain fraud cases but they do not over-report it and quickly move on to other matters. Investors take these incidence as part and parcel of the stock market, fraud are things that have happened and will continue to happen in the financial markets. One should not react as though it is incomprehensible that fraud can happen to listed companies in Singapore. This is one of the possible reasons why the PE of china companies in hong kong has recovered much “faster” compared to those China companies PE in Singapore. I use the word “faster” because HK listed china companies PE are usually higher than S-chips.

What’s done is done, so what to expect next for Singapore S-chips…..

If you look at the PE S-chips are at now ie trading 3 to 5x pe, these valuations to me are pre-ipo valuations and we know that pre-ipo valuations means High risk High returns.

These means “some” of the s-chips may yet blow up due to the high risk associated with but “some” who survive will give high returns later from the low valuation they are at now. One good example would be an S-chip called Sinotel. The lowest price was around 7c (when EPS was about 10c) this means the stock was trading below 1x PE haha, we can laugh now in hind-sight. But when smart money realize the rediculous under-valuation, the stock price start to recover and recently went to as high as 70c (10 bagger is the high return some pre-ipo projects may give).

So when we look at S-chips now, we should adopt they way PE (private equity) fund invest in pre-ipo project…..they expect high risks and high returns, so they DIVERSIFY.

PE fund usually try to go in at 2-4x pe before ipo and wait to make few baggers when the ipo goes through.

But if the ipo is stucked or failed, their money may go up in smoke.

So they usually try to spread their money evenly in a few projects such that as long as some make it, they will still make money at the end of the day.

In summary, look at s-chips as pre-ipo projects (high risk high return), and learn to diversify when you put money in s-chips with the expectation that some may still blow up in your face ;)

Before I sign off, let’s not forget the quietly growing number of I-chips (Singapore listed Indonesia Owned) listed in Singapore share market and the “thrill” that they are giving us now………hmm sounds familiar eh

Happy Trading

Rooney

Singapore stock market update

24th Sept 2009 China Animal proposed placement of new shares

Singapore listed company China Animal Healthcare just announced that the Company has entered into a placement agreement dated 24 September 2009 ("Placement Agreement") with DBS Bank Ltd. as placement agent ("Placement Agent").

Pursuant to the Placement Agreement, the Company proposes to issue up to 100,000,000 New Shares and (in the event the Upsize Option is exercised in full) up to 20,000,000 Additional New Shares (together with the New Shares, the "Placement Shares") for purposes of a private placement at an indicative issue price of S$0.215 per Placement Share (to be finalised). No prospectus or offer information statement will be lodged by the Company with the Monetary Authority of Singapore in connection with the Placement.

The Company is undertaking the Placement as a strategic initiative to further enhance its financial flexibility and competitive position. In particular, the Placement will provide the Company with additional financial strength and capacity to pursue suitable acquisitions and opportunities arising in its key markets.

Singapore stock market update :

We are entering the hot season for earnings release now for singapore listed companies and here are some of the dates to watch out for :

30.04.09 CapitaCommercial Trust FY1Q09
30.04.09 CDL Hospitality Trusts FY1Q09
30.04.09 Singapore Post FY09
04.05.09 UOI FY1Q09
05.05.09 Noble FY1Q09
05.05.09 Great Eastern FY1Q09
05.05.09 ST Engrg FY1Q09
06.05.09 OCBC ** FY1Q09
06.05.09 UOB FY1Q09
06.05.09 LMA FY1Q09
06.05.09 Fortune REIT FY1Q09
07.05.09 Armstrong Industrial FY1Q09
07.05.09 Starhub FY1Q09
07.05.09 ParkwayLife REIT FY1Q09
07.05.09 Cosco FY1Q09
08.05.09 Hiap Hoe FY1Q09
08.05.09 HTL Int'l FY1Q09
08.05.09 DBS * FY1Q09
08.05.09 Sembcorp Marine FY1Q09
08.05.09 Otto Marine FY1Q09
09.05.09 China Sunsine FY1Q09
11.05.09 Lee Kim Tah FY1Q09
11.05.09 City Devt FY1Q09
11.05.09 Eastern Asia Tech FY1Q09
11.05.09 MFS Technology FY2Q09
11.05.09 SIA Engrg FY09
11.05.09 SATS * FY09
11.05.09 Synear Food FY1Q09
12.05.09 China Sports FY1Q09
12.05.09 SP Ausnet FY09
12.05.09 Superbowl FY1Q09
12.05.09 Hotel Royal FY1Q09
12.05.09 WBL Corp FY2Q09
12.05.09 Sembcorp Ind FY1Q09
13.05.09 Macquarie Int'l Infr Fund FY1Q09
13.05.09 IFS Capital FY1Q09
13.05.09 Ellipsiz FY3Q09
13.05.09 Kian Ann Engrg FY3Q09
13.05.09 Straits Trading FY1Q09
13.05.09 Vicom FY1Q09
13.05.09 Wilmar Int'l FY1Q09
13.05.09 SBS Transit FY1Q09
14.05.09 Ho Bee FY1Q09
14.05.09 Petra Foods FY1Q09
14.05.09 Saizen REIT FY1Q09
14.05.09 Singtel * FY09
14.05.09 SIA FY09
14.05.09 ComfortDelgro FY1Q09
14.05.09 CSE Global FY1Q09
15.05.09 China Aviation Oil FY1Q09

Singapore stock market news :

Tat Hong issues profit warning, DBS downgrades call, CIMB and CSFB maintains Outperform calls :

DBS downgrades to fully-valued with target price S$0.62 :
Tat Hong alerts investors that its 3QFY09 earnings would be lower yoy, blames on forex losses and lower equipment sales. We have already imputed the weak earnings in our FY09-10 forecast, which are 16%-32% below consensus. Our TP is revised down to S$0.62, based on lower multiple of 0.8x P/NTA. This implies a 10% downside from current share price. The stock has appreciated 20% since our upgrade in November. We advise investors to take profit now. Downgrade to FULLY VALUED.

CIMB maintains Outperform with lower target price of $0.90 :
To account for the adverse currency impact as well as slower demand,

we have cut our forecasts by 14-22% for FY09-11, mainly for its trading business,
which includes spare parts. We also reduce our forecasts for its rental segment by about 7%, to be conservative. Despite the above, we believe TAT’s longer-term fundamentals remain good, as management has been proactive in increasing its business resilience by developing its rental business, while taking measures to reduce trading inventory during this downturn. Management and the Ng family have also been purchasing TAT shares in past months, underscoring their confidence in the business. We maintain Outperform, albeit with a reduced target price of S$0.90 (previously S$0.93) following our earnings reductions. Our target is still based on 0.8x CY09 P/BV.

CSFB maintains Outperfom with target price S$0.95 :
These events were anticipated, and have in aggregate, driven our recent earnings downgrade. We have factored in a weaker 2H09, both on a HoH and YoY basis, as we expect equipment sales, contributing an estimated 30% of total revenue in 2H09, and 24% of total profit, would fall 54% YoY and 57% HoH. This suggests that downside risks to our FY09E forecasts, as well as that of consensus, are limited. We therefore believe that management has been conservative in issuing the profit guidance announcement, and also note the fervent insider buying activities since Aug. 2008. Near term, however, we believe that Tat Hong’s shares could see weakness from profit-taking, given the strong 73% rally since Oct. 2008. We continue to view Tat Hong as well-leveraged into construction sector demand across Asia, which is expected to remain strong over the medium term, given its operational scale, a clear growth strategy, and strong balance sheet. Tat Hong currently trades on 0.8x P/B, at a-fifth of its historical high of S$3.42 in Nov. 2007, about 35% to its historical lows (of 0.5x P/B), and with a 10.5% dividend yield support.

rooney