Over the past three months, many companies in Singapore’s stock market have seen their shares fall, even reaching 52-week lows. But interestingly, even as the stock market in general continue to be buffeted by fears of the current oil-price crisis or a slowdown in economic growth in China, there have been a few companies that have experienced big rallies in their stock prices of 20% or more over the past three months. Let’s take a look at three such companies and ponder an important question: Have investors missed the boat with them already? The infamous oil crisis Rig-builder Sembcorp Marine…
Over the past three months, many companies in Singapore’s stock market have seen their shares fall, even reaching 52-week lows.
But interestingly, even as the stock market in general continue to be buffeted by fears of the current oil-price crisis or a slowdown in economic growth in China, there have been a few companies that have experienced big rallies in their stock prices of 20% or more over the past three months.
Let’s take a look at three such companies and ponder an important question: Have investors missed the boat with them already?
The infamous oil crisis
Rig-builder Sembcorp Marine Ltd (SGX: S51) hit a 52-week low of S$1.30 on 18 January 2016 and closed at just S$1.32 that day. That was around the period when news broke that one of the company’s largest clients, the Brazilian rig owner Sete Brasil, might be heading for bankruptcy.
With around 40% of Sembcorp Marine’s outstanding order book coming from Sete Brasil, there could be massive implications for the former in the event of a collapse in the latter. The sharp falls in the price of oil that has been taking place since late 2014 did not help matters either.
But, with Sembcorp Marine making a large provision of S$329 million in 2015 for Sete Brasil’s projects in its earnings release on 15 February 2016, investors might have felt more confident now with a reduction in uncertainties.
In any case, Sembcorp Marine’s shares have rallied by more than 30% from their 52-week low to their close last Friday at $1.70. Even after the steep increase, SembCorp Marine is now trading at only 1.44 times its tangible book value. That’s a value point that’s still lower than what was seen during the pits of the Global Financial Crisis of 2008-09.
China and its demand
Palm-oil and sugar outfit Wilmar International Limited (SGX: F34) seemed to have been affected by ongoing fears about China’s slowing economic growth.
In 2015, China’s gross domestic product (GDP) had climbed by 6.9%; while that number looks robust, it was the lowest figure reported since 1990. Concerns relating to Wilmar are thus perhaps understandable, given that 45.5% of Wilmar’s revenue had come from the giant Asian nation in 2014, according to data from S&P Global Market Intelligence.
Over the past three months, Wilmar’s shares had closed at a low of S$2.64 on 21 January 2016 (after falling by 17% over the past year), which is only 7% higher than a current 52-week low of S$2.46 that was reached on September 2015. But as of last Friday, Wilmar’s shares are 20% higher than where it ended on 21 January 2016.
Wilmar had released better than expected earnings for the fourth-quarter of 2015 just last week. The company also commented in the earnings release that it can “continue to do reasonably well” despite macro-economic headwinds because of its “resilient” business model, vertical integration, and healthy balance sheet. Wilmar International is currently valued at 13 times trailing earnings.
Indonesia, the great rebound
The Indonesia rupiah was one of the worst performing currencies in South East Asia in 2015. Jardine Cycle & Carriage Ltd (SGX: C07), with the lion’s share of its business coming from Indonesia, saw its share price follow suit – the conglomerate’s share price had clocked a decline of over one-third from S$42 at the start of 2015 to its lowest point in the year, a shade below $27 on October 2015.
But with the rupiah rebounding strongly since September 2015 and continuing an upward climb since the start of 2016, Jardine Cycle & Carriage’s shares have rallied by 21% to S$38.96 over the past three months and is up by nearly 50% from its 52-week low.
In my view, the stock market’s biggest worries at the moment are the price of oil and China’s economic growth. Jardine Cycle & Carriage’s business meanwhile, is uncorrelated with those big worries (the company depends heavily on developments in Indonesia) and this demonstrates the importance of diversification in our portfolio – even as the general market has sagged (the Straits Times Index (SGX: ^STI) is down by 8.5% over the past three months), Jardine Cycle & Carriage’s shares have climbed, as mentioned earlier.
The company, which controls Indonesia’s largest automotive group, now trades at 14 times trailing earnings.
If you are thinking of investing in any of the three companies above, focus not on how much they have rallied over a certain period of time. Rather, focus on how their businesses can perform over the next five to 10 years. Do you expect them to grow materially or struggle terribly for the foreseeable future? If you can answer the latter question, it might allow you to make much better investment decisions.
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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 owns Wilmar International and Jardine Cycle & Carriage.