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Three Shares with the Lowest Prices in the STI

The phrase ‘penny stock’ often sounds like four-letter words to investors who associate them with companies that have no viable operations that are trading at low share prices. These shares can also be victims of share-price manipulation through pump-and-dump schemes. But, not every low-priced share is created the same.

In Singapore, the Straits Times Index (SGX: ^STI) is often used a proxy for how well the overall stock market here is doing. It’s an index comprised of 30 of some of the largest companies traded on the Mainboard exchange in terms of market value. But, don’t be surprised if you see shares that are trading below a dollar in the index – they might have an overwhelmingly large number of shares which more than makes up for their low share price.

And, this brings us to an important point about share prices. When looked at in isolation, they tell us nothing. A low share price does not necessarily equate to a good deal. There’s always a business underneath those shares and as investors, which is what we want to focus on.

We’ve previously looked at three of the most highly-priced shares in the STI. This time, we’ll take a closer look at three of the cheapest shares in the index, with two of them trading under a dollar.

Golden Agri (SGX: E5H) – Share Price: S$0.57

Golden Agri is a vertically-integrated oil palm company with 464,300 hectares (that’s almost 6.5 times the land area of Singapore!) of palm plantations in Indonesia. The term vertical-integration is used to describe how the company runs its own oil palm production and refinery activities while maintaining control over its supply chain through its ownership of palm plantations.

The company’s revenue has grown steadily over the years for a cumulative 6.5-times increase from 2005’s US$819.3m to last year’s US$6.05b. But, the bottom-line has not shown the clockwork-like growth in revenue.

Instead, it has fluctuated wildly – peaking at US$1.423b in 2010 before plummeting more than 70% to US$409.6m last year – possibly due to Golden Agri not being able to control the pricing of its palm-related products.

In any case, the company’s shares have also seen some major ups and downs in the past three years, hitting a trough of $0.48 on May 2010 and a peak of $0.82 on Jan 2011. It is interesting to note that even at its low share-price, it carries a PE multiple of 16, equal to what investors are paying for the earnings of the STI (as of 17 May 2013).

Hutchison Port Holdings Trust (SGX: NS8U) – Share Price: US$0.80

The business trust, which owns container-ports in Hong Kong and Shenzhen, China, made its debut on the Mainboard exchange on March 2011 at an offering price of US$1.01. Early IPO-investors would have seen their capital shrink, but they would have also gotten back 12.3% of the IPO-price in distributions totalling US$0.124.

The trust has seen its annual profits for 2012 jump by 15% year-on-year to HK$3.58b but that couldn’t help the slide in its unit price after the IPO. HPH Trust’s units are currently trading at a PE multiple of 26, which is more than 50% higher than the PE of the STI, suggesting that the trust’s units don’t exactly come cheap even if it’s the third lowest priced share in the index.

It does carry a distribution yield of 8.2% though, which is a lot better than the market’s yield of 2.9% (as of 30 April 2013). But, investors looking for outsized income would have to know what they are getting themselves into by looking at the trusts’ business activities. Its recent first quarter results for 2013 saw it encountering some difficulties due to lower shipping activities, resulting in a drop in quarterly profit which can affect eventual distributions.

Thai Beverage (SGX: Y92) – Share Price: S$0.68

Thai Beverage entered into the spotlight late last year when it bought a 29% stake in property developer and beverage manufacturer Fraser & Neave (SGX: F99). The purchase was part of Thai billionaire Charoen Sirivadhanabhakdi’s plan to acquire control of F&N through his ownership stakes in Thai Beverage and TCC Assets, which controls 61% of F&N.

The company has interests in beer brewing, spirits, non-alcoholic beverages and food which has seen it bring in steady profits that has grown by a cumulative 20% from 2006’s S$418.9m to 2011’s S$493.7b. Last year saw a huge spike in its profit to S$1.14b as the company absorbed the profits of its acquisitions – F&N and beverage-manufacturer Sermsuk – into its financial statements.

With a PE of 15, each dollar of Thai Bev’s earnings is valued at almost the same level as the average of all the companies in the STI, which carries a PE of 16.

Foolish Bottom Line

Low share prices alone can’t tell an investor much about the prospects for future growth. That information is better-conveyed in how well the business has performed and the likelihood of better, worse or similar performance in the future. Also, the share price can’t tell us how big the business actually is. For example, HPH Trust has a market value of S$8.97b (calculated by multiplying its unit price with the number of units in existence), which is lower than Thai Bev’s S$17.6b even though the former has a higher share price.

Once again, share prices alone can’t give us any clue about the true value proposition in a share. HPH Trust is one of the cheapest share around but yet carries a PE multiple that’s a lot higher than the market’s average PE which might make investors think twice about how ‘cheap’ it really is. As we’ve said before, share prices alone, tells us nothing.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.