With the recent slide in Singapore?s stock market, it wouldn?t be a surprise to see even some big blue chips here (the 30 constituents of Singapore?s market barometer, the Straits Times Index (SGX: ^STI)) sporting really low valuations.
As a matter of fact, I ran a screen earlier today on the blue chips and found that some of them are trading at lower than half their tangible book values. With such a low price-to-tangible book (PTB) ratio, they look cheap. Thing is, are they real bargains? Let?s take a look at two such shares.
The palm oil bigwig
At its current price…
With the recent slide in Singapore’s stock market, it wouldn’t be a surprise to see even some big blue chips here (the 30 constituents of Singapore’s market barometer, the Straits Times Index (SGX: ^STI)) sporting really low valuations.
As a matter of fact, I ran a screen earlier today on the blue chips and found that some of them are trading at lower than half their tangible book values. With such a low price-to-tangible book (PTB) ratio, they look cheap. Thing is, are they real bargains? Let’s take a look at two such shares.
The palm oil bigwig
At its current price of S$0.37, Golden Agri-Resources Ltd (SGX: E5H) has a PTB ratio of only 0.4. And, this is after it had rebounded by 32% from its 52-week low of S$0.28.
Golden Agri, the world’s second-largest palm oil plantation company with nearly 490,000 hectares of plantations in Indonesia, is in a tough spot now with it being buffeted by macro-economic and environmental issues that are out of its control.
On the macro-economic front, the company has had to deal with low palm oil prices and a depreciation of the Indonesian rupiah against the US dollar (the company reports in the US dollar but conducts plenty of business in Indonesia). On the environmental front, the haze from forest fires in Indonesia which has choked the skies of Singapore and Malaysia in recent weeks, may even have contributed to negative sentiment from the general public toward palm oil companies.
As mentioned earlier, Golden Agri controls a large swathe of plantations in Indonesia. The main bulk of its assets thus come from its plantations (both the palm fruit trees and the land). Are the stated values of these assets reflective of economic reality so as to warrant investors paying a higher multiple on them in the future? That’s an important question to consider. In the meantime, with Golden Agri’s declining profit (core net profit in the first-half of 2015 had dropped by 27% year-on-year), there isn’t much going on to be excited about the company.
A commodities giant
The embattled commodities trader Noble Group Limited (SGX: N21) is another blue chip that is trading way below its tangible book value.
At the end of the quarter ending 30 June 2015, Noble Group had a tangible book value of US$0.74 (around S$0.99). This means that the firm’s PTB ratio is only 0.45 at its current price of S$0.445. That’s near all-time lows that were last seen in 1997, some 18 years ago.
Noble Group’s profit has also been declining, like Golden Agri. But, questions have been brought up earlier this year about the accuracy of the stated value of Noble Group’s assets on its balance sheet. There may still be lingering suspicions about the matter in investors’ minds and until that issue can be resolved definitively, Noble Group’s PTB ratio may not move higher any time soon.
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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 Stanley Lim does not own any companies mentioned above.