When we buy shares, we should aim to buy them for less than their intrinsic values, giving us an adequate margin of safety. For example, when we purchase $1 worth of assets for 50 cents, we have a margin of safety of 50%, and this “safe distance” can help minimise the downside risks of the investment.
With the recent rout of the Straits Times Index (SGX: ^STI), some blue-chip shares are selling even further below their intrinsic values (or simply put, their net asset values). Here are three of those companies.
CapitaLand Limited (SGX: C31) is the largest real estate company in the Straits Times Index and is also one of the biggest in Asia. Furthermore, CapitaLand is the sponsor of several real estate investment trusts (REITs) listed in Singapore.
Revenue for CapitaLand’s 2019 first-quarter fell 23.8% year-on-year to S$1.05 billion while net profit attributable to shareholders dipped 7.4% to S$295.6 million. CapitaLand said that the lower profitability was due to “lower operating PATMI (profit after tax and minority interests) and lower writeback of impairments, partially mitigated by gains from asset recycling and revaluation of properties.”
The following summarises CapitaLand’s performance for the first quarter of 2019:Source: CapitaLand 1Q 2019 earnings presentation
Over the longer term, CapitaLand has the potential to grow further with the acquisition of Ascendas-Singbridge. Once the deal is completed, the combined assets under management (AUM) of the enlarged CapitaLand will be over S$116 billion, making it the world’s ninth-largest real estate investment manager by AUM. The higher AUM will also give CapitaLand the financial clout to broker more significant deals to further its AUM-growth in the years ahead.
CapitaLand shares are currently selling at S$3.42 apiece. With a net asset value of S$4.66 per share, as of 31 March 2019, CapitaLand is trading at a price-to-book (PB) ratio of 0.73.
Hongkong Land Holdings Limited (SGX: H78) is a property investment, management and development group with properties in countries such as Hong Kong, Singapore, and China. The company has two business segments, namely, investment properties and development properties.
Hongkong Land just released its interim management statement for the first quarter of 2019 on 8 May. It said that the rental reversions for the Hong Kong and Singapore office assets were positive. As for the development properties in China, profit contribution was “lower than in the comparable period in 2018 due to the timing of completions.” However, it added that completions and contracted sales are expected to be stronger in the second half of 2019.
Hongkong Land’s shares currently trade at US$7.0. With a net asset value per share of US$16.43, as of 31 December 2018, its shares are selling at a PB ratio of just 0.43.
UOL Group Limited (SGX: U14) is a property company with an extensive portfolio of development and investment properties, hotels and serviced suites.
For the full year ended 31 December 2018, revenue grew 13% to S$2.4 billion mostly due to the full-year consolidation of revenue from United Industrial Corporation Ltd (SGX: U06) after gaining statutory control of the latter. In June 2018, UOL’s stake in United Industrial Corporation (UIC) crossed the 50% mark, making UIC a subsidiary of UOL.
Meanwhile, net profit for 2018 fell 51% to S$433.7 million mainly due to a one-off gain recognised in 2017. Excluding that, net profit would have improved by 26%.
Looking ahead, UOL’s group chief executive, Liam Wee Sin, commented:
“With the property cooling measures imposed last year, land prices will moderate and en bloc sales will have very limited traction. However, projects with land price advantage, strong product differentiation and in locations with limited supply, will see healthy take-up.
Singapore office rents are expected to appreciate further amid a tight supply. With the Group’s broadened office portfolio in the CBD, we are positioned to ride the continued wave of growth in the office market. In line with our diversification strategy, we have acquired investment properties overseas to further strengthen our recurrent income stream and will continue to deploy our capital overseas.”
Shares in UOL are changing hands at S$7.18 apiece. With a net asset value per share of S$11.45, as of 31 December 2018, the shares are trading at a PB ratio of 0.63.
Worried about the overall state of the market? Do you know the 1 thing you should never do in the stock market? The Motley Fool Singapore’s new e-book lays out a plan to handle market crashes, details the greatest advantage you have as an investor, and looks at decades worth of market data to bring you the smartest insights on investing. You can download the full e-book FREE of charge—Simply click here now to claim your copy
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of CapitaLand Limited and Hongkong Land Holdings Limited. Motley Fool Singapore contributor Sudhan P owns shares in Hongkong Land Holdings Limited.