The Best Value China State Owned Enterprise

There are nine China State Owned Enterprises listed on the Singapore Stock Exchange. The nine companies span a range of industries. They have a total market capitalisation of around S$8b.

Interestingly, the average price-to-book ratio of the nine stocks is just 1.2, which could suggest possible value opportunities.

The biggest margin of safety can be found in GMG Global (SGX: 5IM) with a price to book ratio of 0.6. That is quite cheap. But the producer of natural rubber might be priced below its book value for good reasons.

In the first three quarters of 2014, the company reported a net loss of nearly S$20m. Currently, GMG sports a dividend yield of 1.7%, which is below the market average. Perhaps the market believes that its market value of S$440m might be a little on the high side.

The biggest hitter among the nine stocks is Tianjin Zhongxin Pharmaceutical Group Corporation (SGX: T14). With a market capitalisation of S$2b, it accounts for a quarter of the total capitalisation of the nine China SOE stocks listed in Singapore.

The company is reasonably priced relative to its earnings. An earnings multiple of 12 is below the current market average of 14. However, the pharmaceutical company that boasts a healthy balance sheet with cash totalling S$400 million pays out a meagre dividend. The dividend yield is an uninspiring 0.7%. A price to book ratio of 1.7 is also considerably higher than the average of the other stocks.

Arguably the best value amongst the nine stocks is China Merchants Holdings Limited (SGX: C22). Priced at its book value, there is admittedly little room for error. A price-to-earnings of 14 – the same as the market average – is also unlikely to convince too many value investors.

However, whilst the metrics do not suggest the toll-road company is cheap, they do not highlight it as an overly expensive company, either. The dividend yield on offer is miles ahead of the other nine companies. It currently stands at 8.6%. For the third quarter of this year, the company reported a 45% year-on-year increase in net profit.

It seems that some, but not all, of the China SOEs are value opportunities. But that is the cross that value investors have to bear.

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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 Adam Kuo doesn’t own shares in any companies mentioned.