(July 24):The Straits Times Index has continued to rise and is up 14.8% for the year to July 18. The index now trades at 15 times earnings, above its long-term average of 13.2 times. The higher earnings multiples are making it more difficult to find bargains in the local market, as earnings have yet to catch up.
Meanwhile, a look at the best performing stocks on the Singapore Exchange this year shows that investors are making bullish and even speculative bets on companies with uncertain prospects.
The best performing stock this year based on price change is Serrano, which has risen 1,450%. Serrano is an interior fit-out company, providing interiors for property and refurbishment projects. Shareholders are still waiting for the company to hold its AGM for FY2016. Serrano has applied twice for an extension, the most recent application having been made on July 14. The company has been having trouble paying its auditor BDO, resulting in the auditor not being able to complete its audit of the financial statements for FY2016.
Serrano is also having difficulty repaying its creditors. Letters of demand and statutory demand have been issued by several parties, including Malayan Banking, United Overseas Bank and RHB Bank, to both the company and its former directors Chia Wing Keong and Chia Wing Hock, for sums ranging from $88,866.69 to $33.4 million. Trading of the stock was halted on June 13 and suspended on June 16.
At No 2 is United Food Holdings, which has surged 1,257.1% since the start of the year. The company farms soya beans, breeds pigs and produces animal feed. But it is trying to diversify with the proposed acquisition of Really Time Trading, a trader and distributor of food products. In a recent update on the acquisition, United Food says that RTT made a profit of just RMB384,216 ($77,765) for FY2016 ended December. The acquisition would therefore not have a substantial impact on United Food’s bottom line. United Food, which reported losses of RMB229.3 million for FY2016 ended December, is currently on the SGX’s watch-list for failing to maintain a minimum trading price of 20 cents. In fact, seven of the 10 best performing stocks this year are currently on the watchlist for failing to meet the MTP or for other financial criteria.
Also at the top of the list are Alliance Mineral Assets and China Jishan Holdings. AMA, a tantalum miner with a concession in Australia, had been expected to see a lift in its earnings after it announced a contract to supply lithium mined from its Bald Hill concession. But the company’s major shareholders are now embroiled in a dispute with a business partner, Jonathan Lim. On July 14, AMA announced a suspension of its shares. In a July 19 statement, AMA says the suspension is related to an announcement by Australia-listed Tawana Resources. Tawana is the parent of AMA’s joint-venture partner in the Bald Hill project, and had released the results of a pre-feasiblity study at Bald Hill on July 11. AMA did not release the same information on that date, although it requested for a trading halt in the afternoon. AMA says Tawana “does not have to clear announcements” with a regulator or sponsor, and that AMA could not prevent Tawana from releasing information that “in Tawana’s view, Tawana has to promptly disclose under ASX rules”.
China Jishan, also on the watch-list, is now a cash company. It had disposed of its real estate business on April 6 and was put on notice by SGX on June 30 to obtain a new business.
Technology a hit
Quite a few technology-related stocks have done well this year, riding optimism that demand for semiconductors will keep growing as the Internet of Things takes off. Among them are AEM Holdings and Jadason Enterprises.
AEM makes machines used by semiconductor chip manufacturers for testing, maintenance and assembly. The stock has jumped 346.5% since the start of the year, buoyed by sales orders worth $182 million as at May 31.
Jadason’s core business is in printed circuit board trading and manufacturing. The counter has jumped 505% since the start of the year, with the company expecting its manufacturing and support services to see improved performance in 2H2017.
Our focus on fundamentals would have kept us from buying any of these hot stocks.
CapitaLand to redevelop Golden Shoe
One of our earliest additions to the portfolio has continued to make good business progress.
CapitaLand has announced a joint venture with CapitaLand Commercial Trust and Mitsubishi Estate Co (MEC) to redevelop Golden Shoe Car Park into an integrated development in Raffles Place. CapitaLand and CCT will hold a 45% interest each while Mitsubishi Estate will hold the remaining 10% in the two special purpose vehicles — Glory Office Trust and Glory ST Trust — set up to own the office and serviced residence components of the development, respectively.
CCT has received government approvals for its submitted plans to redevelop Golden Shoe into a mixed-use development. It will have to pay a differential premium for the enhancement of the property from a transport facility to a commercial property. The total development is estimated to cost $1.8 billion, with 52.6% of that going towards the differential premium and land-related costs.
CIMB Research says the deal is positive as it enables CCT to “tap growth opportunities” and build up its acquisition pipeline. CCT has a call option for the commercial component from CapitaLand and MEC, as well as a drag-along right over MEC’s serviced apartment component within five years after the temporary occupation permit is obtained. CapitaLand owns 31.3% of CCT.
Separately, KGI Securities analyst Joel Ng thinks shares of CapitaLand could benefit from the potential privatisation of Global Logistic Properties. GLP is currently a component of the STI and a delisting would result in a rebalancing of portfolios that hold the STI or are benchmarked against it.
Ng expects other property-related counters to see inflows, with CapitaLand being his preferred pick due to its relative underperformance against its peers. Shares of Capita- Land also have the highest potential upside to their consensus price target of $4.13, Ng says in an unrated report.
