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Why Is Yeo Hiap Seng Ltd Near Its 52-Week Low? Is It A Hidden Opportunity For Investors?

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The share price of Yeo Hiap Seng Ltd (SGX: Y03) has been on a roller coaster ride these few years as seen from its share price chart below. Most notably, the company’s share price has been declining after it privatised its majority-owned Malaysia-based subsidiary Yeo Hiap Seng Malaysia Berhad early last year.

As of last Friday’s close at S$2.02, Yeo Hiap Seng is now just a hair’s breadth above its 52-week low of S$2.02. Is the share now low enough for a rebound?

Yeo Chart Source: Google Finance – Yeo Hiap Seng Ltd’s 3-year chart

What Is happening?

Although Yeo Hiap Seng is famous for its Yeo’s brand of beverages, the company has actually ventured into property development since at least the early 2000s by utilizing most of its legacy land banks. The property business has helped boost the company’s pre-tax profit from a negative S$17.1 million in 2009 to a positive S$93.9 million in 2013.

In fact, the other main part of Yeo Hiap Seng’s business, its consumer food and beverage segment, only contributed 8.7% and 17.9% to the company’s operating profit in 2012 and 2013 respectively.

But it seems the company’s changing course again. In its 2013 Annual Report, Yeo Hiap Seng’s management gave some hints on that. The following is what Koh Boon Hwee, Chairman of the company, wrote on the topic in the 2013 annual report:

“The Group has sold its last remaining residential property unit in December 2013. While the Group will not actively pursue fresh property development business, the Group does have some land parcels and defunct factory premises in Malaysia and China which may have re-development potential. The Group may monetize these assets at the opportune time through disposal or re-development. Until such time, the property development segment will be dormant.”

This would mean that the company will likely return to its roots and focus on its food and beverage business again.

Profit collapse

The change in business focus is why the company had seen a huge profit decline in its latest second quarter result – net profit had dropped by 74% to S$12.5 million for the first half of 2014. It was a far cry from what the company had earned in the past few years.

Hidden opportunity

Yeo Hiap Seng had earned S$16.8 million in operating profit in 2013 from its food and beverage segment. At its closing price last Friday, the company has a market capitalisation of S$1.15 billion. That means the company is trading at 68.5 times its operating profit – that’s not a low ratio at all, especially when considering that the SPDR STI ETF (SGX: ES3) carries a trailing price/earnings ratio of around 14 only. The SPDR STI ETF is an exchange-traded fund which tracks Singapore’s market benchmark, the Straits Times Index.

That said, Yeo Hiap Seng does have a very clean balance sheet (as of 30 June 2014, it holds S$121 million in cash with total borrowings of only S$5.8 million) and holds investments in both equities and properties.

If the company is able to significantly increase its earnings from its food and beverage segment, then there might be hope that it can turn its declining share price around.

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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 Stanley Lim doesn't own any shares of companies mention above