Is market becoming overcrowded?

Dec 17, 2010
TAIWAN DEPOSITORY RECEIPTS
Is market becoming overcrowded?
Companies need to assess whether their growth plans will appeal
By Yasmine Yahya

IN THEIR quest for cash, an increasing number of SGX-listed firms have been looking to take out secondary listings via Taiwan Depository Receipts (TDRs).

This year alone, seven Singapore-listed companies successfully launched TDRs, making up just under a third of the 26 TDRs issued this year. Osim has been granted approval by the Taiwan Stock Exchange (TSE) to launch its TDR and four others are in the pipeline.

But yesterday, one of Taiwan's biggest investment banks, SinoPac Securities, warned that the TDR market was in danger of becoming overcrowded and that companies should do some soul-searching before climbing on the bandwagon.

A TDR is a certificate traded in Taipei by firms listed on another bourse. Investors buying TDRs own shares and receive dividends paid out by the firm.

Executive vice-president of the underwriting marketing division at SinoPac Securities, Mr Alan Chuang, highlighted the fact that only two of the seven Singapore-listed firms that have launched TDRs are seeing their Taiwan-listed units trading above water today - Yangzijiang Shipbuilding and Super Group.

Yangzijiang Shipbuilding's TDR, whose issue was underwritten by SinoPac, closed at NT$21.55 yesterday, compared to its listing price of NT$18.80, while Super's TDRs ended the day at NT$15.95, up from its listing price of NT$14.95.

'Towards the end of the year, with the increase in the number of Taiwanese initial public offerings and TDRs, markets began to experience overcrowding,' said Mr Chuang.

He and a number of other TDR experts from Taiwan were in Singapore to give a seminar on the issues and challenges surrounding TDRs to local lawyers, auditors and business leaders.

Mr Chuang believes that too many firms view TDRs as just another quick way to raise funds, without reflecting on whether their growth story will appeal to Taiwanese investors.

To stem the overcrowding and ensure that future TDRs are more well-received by the Taiwanese market, SinoPac has devised a checklist for aspiring TDR issuers.

Firstly, a company hopeful of a successful TDR must have rapid growth potential in China and Greater China.

Secondly, it has to be comparatively undervalued in its original market. To determine this, SinoPac compares a firm's current valuation in its original market to those of firms from the same industry trading on the TSE. In Yangzijiang's case, for example, the shipbuilder was trading at eight times price-to-earnings on the Singapore market before it announced plans to seek a TDR. Today in Taiwan, it is trading at 13 times price-to-earnings.

The third and final test is that the company must be able to use Taiwanese assets and resources to create new business and use the country as a gateway to grow in China.

On the basis of SinoPac's checklist, Osim's upcoming TDR will likely do well, said Mr Chuang. The firm already has a retail presence in Greater China, so Taiwanese investors would be familiar with its products and growth plans.

SinoPac is in talks with 10 Singapore- listed companies that are eyeing TDRs, but based on its checklist, the underwriter will likely select only one or two to take to the Taiwanese market, claimed Mr Chuang.

Besides Yangzijiang, SinoPac has underwritten only one other Singapore-to-Taiwan TDR - that of Medtecs.

Despite SinoPac's cautious take on TDRs, Singapore firms still awaiting approval for their TDR applications are upbeat about their prospects in Taiwan.

Technics Oil & Gas executive chairman Robin Ting is confident that Technics' Taiwan-listed units will not sink below water if its TDR gets the go-ahead.

'Since we are the first oil and gas company that would be listed in the Taiwan capital market, we will bring a feeling of 'freshness' to the market and we believe therefore this will not happen to us,' he said.

'We will definitely focus on running our business well so that the TDR investors will appreciate the strong fundamentals of our company.'

Meanwhile, Kim Eng analyst Eric Ong is urging Singapore investors to be more discerning and less excitable about TDRs.

Companies that announce dual-listing plans often enjoy a knee-jerk reaction from the market that causes their share prices to surge, he noted. Osim shares rocketed 15.6per cent to $1.70 within eight days of its announcement of a TDR.

But their prices usually come drifting back down when investors realise that the firms' business fundamentals have not changed. In Osim's case, its shares closed yesterday at $1.60, almost 6per cent below its peak.

Mr Ong added that investors should note that they cannot transfer their Singapore shares onto the Taiwanese market. This means that Singapore investors cannot capitalise on the premium, if a firm's TDR is trading at a higher price in Taiwan than its shares in Singapore.

yasminey@sph.com.sg

My personal opinion:

Yes it is.
Just look at the rate we are gathering forum members.

Hv a good wkend.

When markets become overcrowded, value investors become scarce

Nobody wants value/cheap stocks in a runaway bull market...people want "hot"/"sexy"/"growth" stocks

Looking at the rate forum members are joining indicates that emerging markets have a long way to go.

U mean the rate of forumners joining this forum is inversely related to lifeline of the bull market

(18-12-2010, 02:54 PM)Zelphon Wrote: U mean the rate of forumners joining this forum is inversely related to lifeline of the bull market

Haha, perhaps not a directly correlation but one can probably infer the general mood and sentiment from the number of joiners. I think there are also a few youngsters who are amateurs and are just stepping into the world of investment, from the looks of some of the more recent posts.

Nothing wrong with that per se, though it does signal that even the uninitiated have started to take notice of the stock market. Perhaps these are early "warning" signs of exuberance?

(18-12-2010, 09:55 PM)Musicwhiz Wrote:

(18-12-2010, 02:54 PM)Zelphon Wrote: U mean the rate of forumners joining this forum is inversely related to lifeline of the bull market

Haha, perhaps not a directly correlation but one can probably infer the general mood and sentiment from the number of joiners. I think there are also a few youngsters who are amateurs and are just stepping into the world of investment, from the looks of some of the more recent posts.

Nothing wrong with that per se, though it does signal that even the uninitiated have started to take notice of the stock market. Perhaps these are early "warning" signs of exuberance?

Well, I started my stock purchase in Jan 2008.

Learning to invest and grow my assets is no longer a luxury like previous generations...

NOW, IT IS A NECESSITY FOR SURVIVAL IN SG...

With the govt screwing up our retirement planning with blotched CPF and various schemes to milk our money and deny our retirement..
It is up to the respective individuals to start investment and financial education early so that we will be self reliant and not get deported to JB when old...

Quote:I think there are also a few youngsters who are amateurs and are just stepping into the world of investment, from the looks of some of the more recent posts.

Everyone needs to start somewhere.

And it must be commended that they are starting young as time is an investor's best friend.

I'm speaking up for and defending the youngsters.

All the youngsters, holla!

(19-12-2010, 12:32 AM)taka666 Wrote: Everyone needs to start somewhere.

And it must be commended that they are starting young as time is an investor's best friend.

I'm speaking up for and defending the youngsters.

All the youngsters, holla!

I understand where Arthur-san is coming from. I too get wary when I see the Handbook for Stock Investors hit the top 10 list for non-fiction books every sunday for several weeks at a stretch.

PS: Not that I'm old or experienced but from someone who was afraid to get into the water long ago and now wading around in the shallow pool, I guess this is just some words of encouragement.
But having said that, youngsters should not be discouraged. There is no better time to start. The only good time to start is while you're young.

If you have say just 10K, while it may seem like a lot now, and one may lose it all due to inexperience or may face nightmar-ish situations (this point I experienced personally when I bought into the market on the last trading day right before Lehman Bros annouced bankruptcy) but as long as you don't bet the ranch in the sense one loses it all mentally and financially, your earnings potential when working life starts will render all that inconsequential and one would have come away from it all a more intelligent investor.

(19-12-2010, 10:12 PM)kazukirai Wrote: If you have say just 10K, while it may seem like a lot now, and one may lose it all due to inexperience or may face nightmar-ish situations (this point I experienced personally when I bought into the market on the last trading day right before Lehman Bros annouced bankruptcy) but as long as you don't bet the ranch in the sense one loses it all mentally and financially, your earnings potential when working life starts will render all that inconsequential and one would have come away from it all a more intelligent investor.

Kazukirai-san, I really admire your courage for being able to stand up again after that horrifying day. Worse of all, its the eve of that collapse. Never forget that day ever. It looked as if the whole global financial system was coming to an end, and I was scrambling to get my close ones' insurance policies out of AIG.

But again, short term memories prevails and alot of the newcomers forgot about it or never personally experienced.

To all newcomers: If your portfolio is profitable. Congrats. Check if some are overvalued. Most people overestimate their driving skills. But the truth is their driving skills are on the same par as their investment skills. (I included) That's why we horn each other on the road all the time.

Couple of advises I would like to share:
1. Check if any counters are overvalued now relative to P/B or P/E or whatever you wish to correlate to.
2. If you are holding penny stocks or worse, China penny stocks, think harder how to manage them.
3. Are you allocating enough for your emergency cash? Or even an opprotunity fund (a idea quoted by Dennis, ex-forumer)

I have nothing to gain for writing these out. In fact, I would prefer all the newbies to punt all their life savings in so that I could get my portfolio more profitable. Since the motive of this forum is to share and to educate, I am doing my part.

Now.. for the newbies part, do your homework and see if there's a need to rebalance your portfolio.

A statement for your thoughts:
A bird in your hand is worth two in the bush.

Cheers.

(19-12-2010, 10:12 PM)kazukirai Wrote: I too get wary when I see the Handbook for Stock Investors hit the top 10 list for non-fiction books every sunday for several weeks at a stretch.

Is this true? Wow, I never realized it until you mentioned it!

I'm amazed though - how can interest in equities shoot through the roof so quickly after the nadir in 2008? It's been hardly two years and now we are seeing signs of rampant, wanton speculation already? Boggles the mind....