I’m a value investor. So, I like to search for companies that are trading at good value. A list of stocks that are near their respective 52-week lows is a good place to start my search for a good reason. These are the stocks that are either neglected or beaten down by investors. And, some of these stocks can be bargains in relation to their actual economic worth because market participants can at times react too negatively to certain companies that have sound long-term prospects but have experienced some short-term stumbles. As such, I will screen for stocks that are…
I’m a value investor. So, I like to search for companies that are trading at good value. A list of stocks that are near their respective 52-week lows is a good place to start my search for a good reason.
These are the stocks that are either neglected or beaten down by investors. And, some of these stocks can be bargains in relation to their actual economic worth because market participants can at times react too negatively to certain companies that have sound long-term prospects but have experienced some short-term stumbles.
As such, I will screen for stocks that are trading near 52-week lows nearly once every week. There are many stocks that pop up on my screen each time I run it. In here, let’s look at three such stocks: SIA Engineering Company Ltd (SGX: S59), Q & M Dental Group (Singapore) Limited (SGX: QC7), and Kimly Ltd (SGX: 1D0).
Source: Yahoo Finance; SGX Stock Facts
First up is SIA Engineering, which specialises in providing aircraft maintenance, repair, and overhaul (MRO) services. It counts over 80 international airlines as its customers, and is majority-owned by Singapore Airlines Ltd (SGX: C6L).
In early November 2017, SIA Engineering released its earnings update for the second quarter of its fiscal year ending 31 March 2018 (FY2018). The reporting quarter was from 1 July 2017 to 30 September 2017. During the quarter, SIA Engineering experienced a 3.7% year-on-year increase in revenue to S$274.7 million. Yet, its operating profit was down by 20.4% to S$19.5 million, driven primarily by higher staff costs, exchange losses, and provision for bad debts.
On a positive note, SIA Engineering’s share of profit from associates and joint ventures rose 33.1% during the quarter to S$22.9 million. As such, profit attributable to shareholders climbed 7.3% to S$38.1 million.
In the earnings release, SIA Engineering provided the following outlook on its business (emphasis is mine):
“The MRO industry is faced with the challenges of new-generation aircraft and engines that require less frequent maintenance and lighter work content. There continues to be intense regional competition. Nonetheless, the significant increase in aircraft fleet will result in growth for the MRO industry.
The Company continues to invest in new technologies and pursue initiatives to enhance productivity and manage its costs. We remain focused on building capabilities for new-generation aircraft and engines and aligning our portfolio of joint ventures to tap new opportunities in the changing business environment.”
Given the challenges of new-generation aircraft and engines requiring less frequent maintenance, and intense regional competition, investors may want to pay close attention to how well SIA Engineering is adapting to its situation.
Next up we have Q & M Dental, which operates a network of dental outlets in Singapore, Malaysia, and China. It also runs a dental equipment and supplies distribution business.
Q & M released its 2017 third quarter earnings in mid-November 2017. The company experienced a 24% year-on-year fall in revenue to S$29.46 million. There were two big culprits: (1) The deconsolidation of Q & M’s dental supplies manufacturing business, Aidite, in December 2016; and (2) the April 2017 deconsolidation of its dental equipment and supplies distribution business, Aoxin. If the effects of Aidite and Aoxin were excluded, Q & M would have experienced an 8% year-on-year increase in revenue in the third quarter of 2017.
During the reporting quarter, Q & M saw its profit attributable to shareholders increase by 28% to S$3.59 million. If one-off items were excluded, the dental services provider would have reported profit attributable to shareholders of S$3.50 million in the reporting quarter, up 34% from a year ago.
Looking ahead, Q & M intends to continue executing its business plans as seen below:
1) Expand its network of dental clinics in Singapore and acquire specialist dental clinics here
2) Expand into Malaysia’s private dental healthcare market
3) Expand into China’s private dental healthcare market
4) Grow its business through acquisitions, joint ventures, and/or strategic alliances
On 25 December 2017, Q & M also revealed that a strategic review of its business that started in February 2017 has concluded. The review was conducted by Religare Capital Markets Corporate Finance. Based on the findings of Religare, Q & M’s board thinks that there is no need for a change in the company’s strategy.
Lastly, we have the largest traditional coffee shop operator in Singapore – Kimly. The company currently runs a chain of 68 food outlets and 129 food stalls island-wide under various brands.
In late November 2017, Kimly announced its fourth quarter and full year results for its fiscal year ended 30 September 2017 (FY2017). For the quarter, revenue grew by 9.2% year-on-year to S$50.04 million, driven by growth across the company’s two business divisions, namely, Outlet Management, and Food Retail. But, due to higher taxes and lower operating income, Kimly’s profit after tax dipped by 1.5% to S$4.98 million for the quarter.
In its earnings release, Kimly said that the food & beverage business is “labour-intensive” and has “keen competition and low barriers to entry.” As such, Kimly expects “the outlook of the industry to remain challenging.”
Going forward, the company plans to address the issues of intense competition and tight labour conditions within the food & beverage industry through the adoption of technology to improve work processes and maximise productivity and efficiency. For example, Kimly is sourcing for new equipment and developing software for its central kitchen. In another instance, the company is implementing an Enterprise Resource Planning software system to “to manage the business and automate back office functions.”
A Foolish conclusion
It’s worth noting that not every company with a stock price near a 52-week low is a legitimate bargain. A declining stock price can decline yet further if the underlying business performance continues to weaken.
Nothing we’ve seen here about SIA Engineering, Q & M, and Kimly should be taken as the final word on their investing merits. The information presented in this piece should be viewed only as a useful starting point for further research.
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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 Lawrence Nga doesn’t own shares in any companies mentioned.