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Are These Shares Really Dirt-Cheap Bargains?

Currently, Singapore’s share market barometer the Straits Times Index (SGX: ^STI) is valued at around 14 times earnings at its level of 3,323 points according to data from the SPDR STI ETF (SGX: ES3). The latter is an exchange-traded fun that aims to mimic the STI.

For some bargain hunters, shares selling at price/earnings (PE) ratios significantly below that of the STI’s might make for possible investment ideas. For other bargain hunters with a focus on a share’s asset value, the 92 shares in Singapore that are selling for below their net current asset values (NCAVs) as of 31 July 2014 might be of interest instead.

Shares selling below their NCAVs can be considered as great bargains as I once wrote:

“Those were shares in which investors could get a discount on current assets like cash, receivables and inventories net of all obligations. In other words, fixed assets like a company’s factories, machinery, and properties, were all thrown in for free.“

Out of those 92 shares, here are three shares that have some of the biggest differences between their NCAVs and their share prices:

Share NCAV divided by market capitalisation*
Qingmei Group Holdings Limited (SGX: KT9) 607%
Foreland Fabritech Holdings Ltd. (SGX: B0I) 674%
Sinotel Technologies Ltd (SGX: D3W) 688%

*Data as of 31 July 2014

Source: S&P Capital IQ

It’s easy to see from the table above how much of a bargain the trio of shares are with their NCAVs being at least 6 times that of their market capitalisations. But interestingly, those three shares are all based in China and would be termed as S-Chips in local investing parlance. In Singapore, S-chips are China-based companies listed in Singapore. Unfortunately, the S-chips also have a pretty bad reputation amongst local investors.

Based on a study by McKinsey & Company, 1 in 10 Chinese companies listed here had been delisted between 2011 and 2013. With such figures, it’s no real surprise to find the market being extremely sceptical of Chinese-listed companies, thus resulting in such low valuations as seen in the table above.

Of course, the flipside of it is that such fear has the potential to create out-sized bargains for legitimate Singapore-listed Chinese companies. But, if you’re a brave-hearted bargain hunter, it’s very important to bear in mind that you would have to be very sure that such Chinese companies have proper accounting practices and real businesses in place before trying to take advantage of any apparent-bargains that might surface.

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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.