There has been a steep fall in stock prices in Singapore these past few weeks, leading to the Straits Times Index (SGX: ^STI) sitting on a near-20% loss at one point in time from this year’s peak. Lately, there has been a slight rebound, with the index gaining 5.4% from its recent bottom at 2,843 points. But, there are still many shares which are trading at or near their 52-week lows. Let’s take a look at two in particular. Hit by declining margins At their closing price of US$6.65 last Friday, Dairy Farm International Holdings Ltd’s (SGX: D0) shares have…
There has been a steep fall in stock prices in Singapore these past few weeks, leading to the Straits Times Index (SGX: ^STI) sitting on a near-20% loss at one point in time from this year’s peak.
Lately, there has been a slight rebound, with the index gaining 5.4% from its recent bottom at 2,843 points. But, there are still many shares which are trading at or near their 52-week lows. Let’s take a look at two in particular.
Hit by declining margins
At their closing price of US$6.65 last Friday, Dairy Farm International Holdings Ltd’s (SGX: D0) shares have fallen by more than a third over the last 12 months and are sitting just 3.6% higher than their 52-week low.
Dairy Farm is a pan-Asian retailer which runs supermarkets, hypermarkets, convenience stores, restaurants, and more. The company – along with its associates and joint ventures – operates over 6,400 retail outlets across Asia. Some of the company’s stores like Giant, Cold Storage, Guardian, and 7-Eleven might be a familiar sight in Singapore.
2015 hasn’t been a kind year for Dairy Farm with its profit for the first-half of the year falling by 18% year-on-year. Squeezed margins in its businesses were a major culprit for the poor showing.
Meanwhile, the firm’s balance sheet has also deteriorated significantly from a year ago with its net-cash position of US$568 million becoming a net-debt position of US$596 million. The weakened balance sheet may be for a good cause however as it happened because Dairy Farm had bought a 19.99% interest in fast-growing Chinese grocery outfit Yonghui Superstores in April for more than US$900 million.
Elsewhere, currency woes (Dairy Farm reports in the U.S. dollar but does business in many Asian currencies, most of which have depreciated against the U.S. dollar this past year) are also weighing on the firm’s results. It’s not hard to see why Dairy Farm’s shares have fallen hard given the situation I’ve painted above.
That said, my colleague Chong Ser Jing had highlighted how Dairy Farm was already carrying a historically-cheap valuation back in June. Back then, the retailer was trading at 23 times its historical earnings. At its closing price last Friday, Dairy Farm’s carrying a trailing price-to-earnings (PE) of 19.
That makes Dairy Farm look like an even cheaper bargain. But, there are other important factors investors need to consider as well before any conclusion can be drawn.
Hammered by real estate
Local real estate giant CapitaLand Limited (SGX: C31) closed last Friday at S$2.85, down 13% compared to a year ago and sitting just 3.6% higher than its 52-week low.
CapitaLand is one of Asia’s largest real estate companies. Along with real estate development, the company also owns stakes in and manages a number of real estate investment trusts like Capitaland Mall Trust (SGX: C38U), CapitaRetail China Trust (SGX: AU8U), CapitaLand Commercial Trust (SGX: C61U), and Ascott Residence Trust (SGX: A68U).
Through these REITs, CapitaLand is an investor in various types of real estate like shopping malls, commercial properties, serviced residences and hotels.
CapitaLand’s latest results in the first-half of 2015 have been mixed. While revenue for the period grew by 31% year-on-year, profit had dipped by 7%. This may have pressured the firm’s shares.
Meanwhile, with a possible rate-hike from the U.S.’s Federal Reserve looming in the background, investors may also be shunning companies with businesses that can be adversely affected by pricier debt. Property developers happen to fall into such a category.
Then, there’s also the weak Singapore private residential real estate market to fret about; Singapore is one of CapitaLand’s most important geographical markets. The situation in China – with its slowing economic growth and volatile stock market – is also another source of worry given that CapitaLand also depends on the country as a large source of business.
At last Friday’s close, CapitaLand’s valued at just 10.5 times its trailing earnings and carries a dividend yield of 3.1%.
Falling or low stock prices may make shares look like bargains, but investors should not blindly focus solely on prices. It is crucial that we perform due diligence and determine if a share’s underlying business fundamentals are still intact and if its valuation makes sense at current prices.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.