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Monday, 19 December 2016

Singapore Stocks Market: Outlook

11:10 Posted by szcszc 2 comments
I was browsing through the different stock prices as usual. Given the recent spate of local M&As and delisting manoeuvres, it seems to me that the number of quality stocks have decreased in our local bourse. With well-known local companies such as OSIM, SMRT and Eu Yan Sang International delisting, is the local market valuation truly too low as compared to the global valuations?

A simple Google search can give you the results. Here's what I found (Credits to My Stocks Investing Journey Blog): Singapore's STI had the lowest PE ratio of 12.01 relative to the global average PE ratio of 23.35 in Oct 16. Now that's real cheap! Almost similar to a Black Friday Sale of 50% discount!

With that in mind, then the acquisitions of Super Group and delisting of companies are not illogical at all and may even be at a bargain. Using a case study from OSIM, while the founder Ron Sim may have taken the company private at a trailing PE ratio of 19.7, this is a far-cry from its peak performance, where in comparison it is only 9.6x its peak earnings. It is also done at a time where OSIM's earnings have taken at hit of 50%. Hence, it could be strategically planned to be taken private at OSIM's business trough.

Hence, without doubt, next year's overarching theme will be on mergers and acquisitions to capitalise on these inefficiencies in Singapore market. One dominant strategy following this theme will be to identify undervalued companies with strong business moats (competitive advantages) that cannot be easily replicated. Referencing Super Group as a case study, the company has a strong brand image and offers a wide spectrum of consumer products with regional presence in South-East Asia. These are difficult to replicate and take years to build. A perfect acquisition target in this low valuation market.

Even the Singapore investment arms have realised this and urged Global Logistics Properties (GLP) to boost its share prices to better reflect its underlying valuations. You can read more information here: http://www.businesstimes.com.sg/companies-markets/glp-doing-strategic-review-to-enhance-shareholder-value-on-request-from-gic

It is also worthy to note the company's insider holdings as potential acquisitions and merger candidates are those with higher institutional shareholdings. This characteristic usually allow easier takeover bids and negotiations. However, retail minority shareholders' interest may be compromised as a result. Investors should know their rights and avenues to seek redress.

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2 comments:

  1. It is quite saddening to have many companies delisting this year.

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    Replies
    1. Hi there!

      That is true though. The number of good quality companies are dwindling in the Singapore market. If the Singapore Exchange does not do anything to boost the ever-decreasing volumes and poor valuations, the trend of delisting could continue.

      Delete