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04-11-2010, 07:37 AM
Are the analysts right? Are the S-chips under-valued or merely correctly valued due to their lack of transparency? Discussions welcome!
Nov 4, 2010
S-chips make a comeback in Singapore
Analysts cite possible reason: growing realisation they may be undervalued
By Goh Eng Yeow, Senior Correspondent
THEY have been in the doghouse for over a year, but interest in S-chips is slowly reviving as retail investors are lured back into the market in large numbers.
Scandals, corporate governance issues and just plain dodgy dealing made S-chips - China plays listed on the Singapore Exchange (SGX) - market pariahs.
Among the worst offenders were Fibrechem Technologies and education firm Oriental Century, which were both suspended from trading over alleged accounting irregularities.
But investors took another look around the middle of the year and they have driven up values by about 25 per cent in the past five months, as measured by the FTSE ST China Index, which tracks 59 such firms.
That stellar performance beat the 21 per cent rise of the benchmark Straits Times Index, which tracks blue chips.
Analysts said there are a number of reasons to explain the turnaround.
One is a growing realisation that S-chips may be undervalued by investors, given the healthy appetite shown in Hong Kong and Taipei each time one of them makes a secondary offer of their shares there.
The continuing China boom story is also making investors sit up and take notice.
The mainland's purchasing managers' index rose to 54.7 per cent last month, up from 53.8 per cent in September - a striking reflection that its huge manufacturing sector is expanding to cope with rising consumer demand.
Then there is the hope that S-chips will unveil better-than-expected quarterly results over the next few weeks.
It is all music to the ears of investors as they make their way back to the market in anticipation of the year-end rally.
'Some S-chips offer very attractive bargains because they have fallen way below book value. Sooner or later, they will get a positive re-rating from the market,' said trader Peter Ong, who bought into a number of China plays recently.
The catalyst for analysts to re-rate an S-chip is a secondary listing on another bourse.
'The rational time to invest in an S-chip is when there is a stock market equivalent of an angioplasty - opening up the way which is blocking its valuations by having a secondary listing elsewhere,' said Phillip Securities analyst Chan Wai Chee.
Credit Suisse observed last month that share prices of companies looking for dual listings in Hong Kong typically rise about 65 per cent between the time of announcing plans to list and receiving approval. The rise in Taiwan is around 10 per cent.
Once approval to trade is granted, both groups of companies enjoy a further 20 per cent jump in prices on average.
But traders said credit must go to S-chips that make the extra effort to look after local investors' interest by seeking to narrow any differences between the prices of the SGX listings and those of shares traded elsewhere.
One example is giant shipbuilder Yangzijiang, which in September became the first mainland firm to trade Taiwan Depository Receipts (TDRs).
It priced the new shares sold in Taiwan at a marginal 0.3 per cent discount to its then SGX-traded price. Since then, the SGX-listed shares have also enjoyed the higher valuation given to the company's TDRs.
Yangzijiang closed here at $1.90 on Tuesday, while its equivalent closing price in Taipei was $1.89. This meant the shares have rocketed by 61 per cent in the five months since it conceived its plan of TDRs.
For traders, recent efforts by S-chips to do a dual listing surely beat the earlier wave of delistings that deprived them of any upside as the market roared back to life.
Trader John Lee noted that Sihuan Pharmaceutical was taken private at 97.5 cents a share in December last year, valuing the mainland drugmaker at $458.3 million.
But the company is now valued at about HK$30.9 billion (S$5.1 billion), after it relisted in Hong Kong last month and drew investors like billionaire George Soros to put cash in.
If Sihuan had chosen the dual listing route instead, investors here would have reaped some of the benefits when it launched its Hong Kong initial public offering, said Mr Lee.
engyeow@sph.com.sg
Nov 4, 2010
S-chips make a comeback in Singapore
Analysts cite possible reason: growing realisation they may be undervalued
By Goh Eng Yeow, Senior Correspondent
THEY have been in the doghouse for over a year, but interest in S-chips is slowly reviving as retail investors are lured back into the market in large numbers.
Scandals, corporate governance issues and just plain dodgy dealing made S-chips - China plays listed on the Singapore Exchange (SGX) - market pariahs.
Among the worst offenders were Fibrechem Technologies and education firm Oriental Century, which were both suspended from trading over alleged accounting irregularities.
But investors took another look around the middle of the year and they have driven up values by about 25 per cent in the past five months, as measured by the FTSE ST China Index, which tracks 59 such firms.
That stellar performance beat the 21 per cent rise of the benchmark Straits Times Index, which tracks blue chips.
Analysts said there are a number of reasons to explain the turnaround.
One is a growing realisation that S-chips may be undervalued by investors, given the healthy appetite shown in Hong Kong and Taipei each time one of them makes a secondary offer of their shares there.
The continuing China boom story is also making investors sit up and take notice.
The mainland's purchasing managers' index rose to 54.7 per cent last month, up from 53.8 per cent in September - a striking reflection that its huge manufacturing sector is expanding to cope with rising consumer demand.
Then there is the hope that S-chips will unveil better-than-expected quarterly results over the next few weeks.
It is all music to the ears of investors as they make their way back to the market in anticipation of the year-end rally.
'Some S-chips offer very attractive bargains because they have fallen way below book value. Sooner or later, they will get a positive re-rating from the market,' said trader Peter Ong, who bought into a number of China plays recently.
The catalyst for analysts to re-rate an S-chip is a secondary listing on another bourse.
'The rational time to invest in an S-chip is when there is a stock market equivalent of an angioplasty - opening up the way which is blocking its valuations by having a secondary listing elsewhere,' said Phillip Securities analyst Chan Wai Chee.
Credit Suisse observed last month that share prices of companies looking for dual listings in Hong Kong typically rise about 65 per cent between the time of announcing plans to list and receiving approval. The rise in Taiwan is around 10 per cent.
Once approval to trade is granted, both groups of companies enjoy a further 20 per cent jump in prices on average.
But traders said credit must go to S-chips that make the extra effort to look after local investors' interest by seeking to narrow any differences between the prices of the SGX listings and those of shares traded elsewhere.
One example is giant shipbuilder Yangzijiang, which in September became the first mainland firm to trade Taiwan Depository Receipts (TDRs).
It priced the new shares sold in Taiwan at a marginal 0.3 per cent discount to its then SGX-traded price. Since then, the SGX-listed shares have also enjoyed the higher valuation given to the company's TDRs.
Yangzijiang closed here at $1.90 on Tuesday, while its equivalent closing price in Taipei was $1.89. This meant the shares have rocketed by 61 per cent in the five months since it conceived its plan of TDRs.
For traders, recent efforts by S-chips to do a dual listing surely beat the earlier wave of delistings that deprived them of any upside as the market roared back to life.
Trader John Lee noted that Sihuan Pharmaceutical was taken private at 97.5 cents a share in December last year, valuing the mainland drugmaker at $458.3 million.
But the company is now valued at about HK$30.9 billion (S$5.1 billion), after it relisted in Hong Kong last month and drew investors like billionaire George Soros to put cash in.
If Sihuan had chosen the dual listing route instead, investors here would have reaped some of the benefits when it launched its Hong Kong initial public offering, said Mr Lee.
engyeow@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
