Could Hongkong Land Be A Value China Financial Stock?

Markets do not like uncertainty. That much is certain.

Whenever political or economic uncertainty shrouds a company, a sector or even an entire country, stocks could be adversely affected.

If you follow the sage words of Warren Buffett, it is at these moments when markets are fearful. That is also the moment when investor should be greedy.

However this does not mean that you should pile into every stock that looks cheap. In some cases there could be good reasons for a stock’s value to fall. It is therefore an investor’s duty to decide why a share has fallen.

China is a country that can sometimes be unfathomable. There is much debate about how the Chinese economy will perform this year and in the longer term too.

Questions remain about how China will rebalance its economy as it shifts towards consumer-led growth.

Take for example the 10 largest financial companies listed on the Singapore Exchange that report significant proportions of their revenue from the Peoples Republic of China.

Perhaps it is these uncertainties that have led the average price-to-book ratio of these companies to sink below one. It could also be one of the reasons for the shares to trade at just 18% above their 52-week lows.

For example, Hongkong Land Holdings Limited (SGX: H78), the largest company of the ten is capitalised at nearly S$25b, is valued at a 30% discount to book. Dig a little deeper, though, and you will see that over the last few years the company has seen its net profits tumble. Perhaps worries over the company’s future profits have contributed to its low share price.

Another example is Bund Center Investment Limited (SGX: MQ4). Its price-to-book of 1.5 is the second-largest of the ten stocks, which hardly suggests that it could be a value share. What does suggest the company may be cheap is its dividend yield of 16%. However, you might conclude that this could be too good to be true, especially when the payout ratio is 408%.

It is often worth probing why a company has found itself shares being offered as a discount to its book value or why it has seen its share price fall. Even a value investor that is only concerned with hard numbers should try to do that.

It is all about balancing risk and potential reward.

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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.