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Singapore’s Undervalued Blue Chips

StockMarketBoardThe Singapore market is looking cheaper today than it has done for the last three years. Last year the market was valued at 1.6 times book value, while in 2010 investors were paying almost two times book value.

But today the Straits Times Index (SGX: ^STI) is valued at just 1.3 times book value. In other words, investors are paying a 30% premium for the assets of Singapore shares today compared to two years ago when the market was valued at a 100% premium.

Currently, there are six blue chips valued below their book value. In other words the market is valuing these companies at less than what their assets could be worth.

They include property developer Hongkong Land (SGX: H78) and farmer Golden Agri-Resources (SGX: E5H), both of which are valued at 0.6 times book. Meanwhile, Singapore Airlines (SGX: C61) and commodities trader Noble Group (SGX: N21) are valued at a 10% discount to book.

The Price to Book can be a useful tool to help identify shares that might be undervalued. That said, a low price to book could also suggest the market might think the assets are overvalued. It could also signify that investors might be unimpressed with the company’s growth. Consequently, they are unwilling to stump up more for the assets.

Interestingly, the market may have a point. The six companies have delivered Return on Equities that are unlikely to set the market alight. For instance SIA’s RoE of 3.6% is below the market average of 9%. GAR Return on Equity of 5% is a tad underwhelming too. However, Noble Group may be worthy of further investigation.

The Price-to-Book ratio might be a crude way to value a company. But when used together with other tool, it can provide some useful insights into possible investing opportunities.

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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 Director David Kuo doesn’t own shares in any companies mentioned.