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Are These Two Companies Singapore’s Cheapest Shares?

Who’s up for a bargain? In the stock market, bargains can sometimes periodically appear and one way of finding them, would be to focus on shares that are selling for way less than their net asset value (otherwise known as book value).

A quick screen of Singapore’s market has thrown up names like Creative Technology (SGX: C76) and Fu Yu Corporation (SGX: F13).

Company

Book value per share

Share price

Price to Book ratio

Creative Technology

S$2.64

S$2.19

0.83

Fu Yu Corporation

S$0.22

S$0.087

0.39

Source: S&P Capital IQ

Considering that the median price to book ratio for the 30 blue chips within the Straits Times Index (SGX: ^STI) is around 1.3, it would seem that Creative and Fu Yu are cheap for investors looking for such bargains.

A deeper dive into the balance sheet figures – that’s where the book value comes from – seems to make an even stronger case for Creative and Fu Yu being some of Singapore’s cheapest shares.

Creative carried S$180 million worth of cash and short-term investments (think equities, short-term bonds, money-market funds etc.) on its latest balance sheet while having no debt and yet it carries a market capitalisation of only S$154 million. It’s a similar situation for Fu Yu, which has net-cash (total cash and short-term investments minus total debt) of some S$75 million and yet it has a market capitalisation of only S$64 million. Those two companies are in effect, selling for less than their cash values.

But while those two shares might look like bargains based on their assets, there are certain risks that come with such forms of bargain-hunting. For instance, Creative hasn’t been able to generate positive operating cash flow over its past five completed-financial years – i.e. it has been burning through its cash hoard for half a decade. If the situation doesn’t change, the very factor that makes Creative seem like a bargain (the large disparity between its market capitalisation and cash on hand) would soon disappear.

All told, investors who believe that both Creative and Fu Yu can at least survive and generate positive cash flow in the years ahead might view them as bona fide bargains. On the other hand, those who think that much tougher times are ahead for the duo might legitimately prefer to think of them as value traps.

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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.