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Three Shares Near 52-Week Lows – What’s Next?

We’re now more than three months into 2014 and the Straits Times Index (SGX: ^STI) hasn’t exactly had a great time so far; it’s currently at 3,095 points, some 2.2% lower than its level of 3,167 points at the end of 2013.

In fact, it’s now only 4.6% higher than its 52-week low of 2,960 points that it had reached recently on 5 Feb 2014. But that said, the index is still doing somewhat better than the following three shares: SMRT Corporation (SGX: S53); AIMS AMP Capital Industrial REIT (SGX: O5RU); and Neptune Orient Lines (SGX: N03).

The trio had hit new 52-week lows as recently as yesterday and as of the time of writing (10:35am, 4 March 2013), are just hair’s breadths above their respective-lows.

Company

52-week low

Date: 52-week low

Current price

Price difference

SMRT

S$1.015

3 March 2014

S$1.02

0.5%

AIMS AMP

S$1.31

3 March 2014

S$1.32

0.8%

Neptune Orient Lines

S$0.94

27 Feb 2014

S$0.96

2.1%

Source: S&P Capital IQ

1. SMRT Corporation

The land transport outfit, which operates a number of rail lines in Singapore, can’t seem to catch a break.

In its latest third quarter earnings release announced on late Jan 2014, SMRT saw its revenue for the nine months ended 31 Dec 2013 grow by 4.3% year-on-year to S$874 million. Unfortunately, its profits had shrunk by 52.8% to S$45 million mainly, driven by higher staff costs, which had increased by 24% from S$283 million a year ago to S$351 million.

Next, the government of Singapore revealed that it has imposed tougher rules on rail transport operators (of which SMRT is one), which can see the latter getting fined up to 10% of their annual fare revenue for every rail incident. This came after authorities had tried to relieve some pressure on the rail operators by hiking transport fees recently.

Considering that SMRT’s profit margins for the first nine months of its current financial year are already thin at 5.1%, the prospect of facing huge fines with each rail incident would seem unpalatable to say the least. The number of rail incidents also does not seem to be slowing down, given how there was one train delay on Monday that had followed at least three other incidents that happened in January this year.

In the company’s latest third quarter earnings release, its chief executive, Desmond Kuek, reiterated the cost pressures the company would continue facing though he did say that “impact of rising costs will be mitigated partially next year by the recently approved fare adjustments, and [SMRT’s] continuing efforts to drive higher productivity and cost efficiency.” 

SMRT’s trading for 47 times its trailing earnings at its current price.

2. AIMS AMP Capital Industrial REIT

The real estate investment trust, with a portfolio of 24 operational industrial properties in Singapore, had just tumbled to a new 52-week low yesterday. Units of the REIT have been on a steady decline since the release of its latest third quarter earnings results on 29 Jan 2014; the REIT had closed at a price of S$1.44 per unit on the day it released its earnings and is now 8.3% lower at its current price.

Results at the REIT weren’t too bad, as most measures of its economic performance were positive. For instance, for the nine months ended 31 Dec 2013, net property income had grown by 18.6% year-on-year to S$52.6 million while distributions jumped 22.6% to S$41.6 million. Unfortunately, the REIT’s distributions per unit only managed to move up by 5.8% to 8.02 Singapore cents mainly as a result of a private placement of 68.75 million new units that took place on May 2013.

Since the release of its third quarter earnings, the REIT has gone on to announce on 14 Feb 2014 that it would raise capital in the form of a rights issue that would be completed by 21 March 2014. The REIT would offer 7 rights units for every 40 existing units for S$1.08 per rights unit to raise gross proceeds of up to S$100 million. AIMS AMP intends to use up to S$80 million of the proceeds for asset enhancement initiatives, development projects, or acquisitions while the bulk of the remaining proceeds would go toward paying down existing borrowings.

The trust sees “a strong pipeline of potential asset enhancement initiatives, development projects and/or third party acquisitions” and the capital raise would give it the financial muscle needed to pursue such opportunities.

The REIT’s currently selling for 0.87 times book value, excluding any changes to its assets that would result from the upcoming rights issue.

3. Neptune Orient Lines

The shipping firm was once part of benchmark Straits Times Index in Singapore, a group of 30 of Singapore’s largest publicly-listed companies. But, tough times befell the company and its place in the index was taken up by IHH Healthcare Berhad (SGX: Q0F) on 24 Sep 2012.

Starting from 2011, Neptune Orient Lines has racked up three years of consecutive pre-tax losses totalling some US$881 million (excluding one-time events). This has caused the company to face the ignominious prospect of being possibly included into a watch list of shares that stock exchange operator Singapore Exchange keeps.

The watch list is meant for shares that have: 1) recorded pre-tax losses excluding one-off events for three of its most recently completed financial years; and 2) an average daily market capitalisation of less than S$40 million over the last 120 market days.

The shipping industry has faced a glut of supply for ships for years, leading to a drop in freight rates and thus affecting Neptune Orient Lines adversely. And while there are signs of improvement in the company’s latest annual results for 2013 – the company had suffered lower pre-tax losses during the year as compared to 2012 and 2011 – there’s still the spectre of over-supply hanging in the air. The company also said as much during its earnings release when it commented that “Conditions in the liner industry are expected to remain challenging due to continued over-supply of capacity. Liner freight rates will remain under pressure.”

Shares of the shipping firm are going for slightly less than 1 times book value at their current price.

Foolish Bottom Line

There are more than 700 publicly-listed companies in Singapore’s stock market and investors can expect many shares to be hitting new highs or lows every now and then. But, not every share that hits a 52-week low is considered a bargain, just as not every share that’s at a historic high is necessarily over-valued. At the end of the day, it’s the change in the share’s business fundamentals that matter, not its price.

Are the three shares above any bargains given how they’re so close to their 52-week lows? The answer would have to depend on the investor’s own take on whether the businesses of trio are healthy and could prosper over the next five, 10, or even 20 years.

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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 writer Chong Ser Jing doesn’t own shares in any companies mentioned.