As heated as the stock market is now, investors may feel that there is not a good investment to be found. But even though there might not be any dollars selling for pennies, we can still find good-quality businesses selling at below their intrinsic value.
With that said, here are two Singapore stocks that could be excellent additions to a value investor’s portfolio.
King of the jungle
Haw Par Corporation Limited (SGX: H02) manufactures healthcare products and owns long-term investments in stocks, property, and leisure assets. Its principal activity is the licensing of the Tiger brand, which includes products such as Tiger Balm and Kwan Loong. It also owns 74.8 million shares of United Overseas Bank Limited (SGX: U11) and 72.0 million UOL Group Limited (SGX: U14), along with four properties and Underwater World Pattaya.
Impressively, Haw Par Corporation’s healthcare segment has grown at a remarkable (and consistent) rate, despite the emergence of numerous substitutes to Tiger Balm.
From 2007 to 2018, revenue and profit from its healthcare segment rose at annual rates of 10.8% and 16.5%, respectively.
Most recently, first-quarter revenue spiked 22.3%, while net profit increased 14.1%, driven by higher demand for its healthcare products.
Haw Par Corp also has a rock-solid balance sheet. As of March 2019, the group boasted a net cash position of S$506.6 million and generated a further S$6.3 million from operating activities in the first three months of the year.
But what makes the company appealing to me is the fact that its shares have gone somewhat unnoticed in the stock market.
At the time of writing, shares of Haw Par Corporation Limited trade at S$13.95 per piece, giving it a market capitalisation of S$3.08 billion. That gives it a price-to-book ratio of one and a price-to-earnings ratio of 17.
Considering that the company has around S$2.95 billion in cash and marketable securities on its balance sheet, its current share price looks like a steal.
A good time to recruit this company for your portfolio
The next company on the list is HRnetgroup Ltd (SGX: CHZ). The recruitment company’s stock has fallen from its recent high of S$0.90 to S$0.69. The market seems to have reacted extremely harshly to the group’s poor first-quarter showing, where it recorded a 2.8% drop in both revenue and gross profit.
However, I feel that the steep fall in price has created a perfect buying opportunity for a company that boasts a rock-solid balance sheet and a long track record of growing its business.
HRnetgroup has a net cash position of S$242 million and has been a healthy generator of cash from operations. And despite the slight fall in revenue, the group still generated a healthy gross profit of S$35.4 million in the first quarter of 2019. Its net profit to shareholders was S$10.4 million after stripping away one-off revaluation gains and government subsidies. Its revenue has also compounded at an annual clip of 9.0% in the last 10 years.
As with other recruitment firms, HRnetgroup’s business slowed in the last quarter due to the harsh economic environment arising from geopolitical uncertainties, which saw many companies holding back their expansion plans.
However, the long-term prospects of HRnetgroup still remain firmly on course. Despite the near-term setback, the group has kept its foot on the pedal, setting up offices at important regional cities in a bid to expand its business into geographical markets. North Asia, in particular, has much larger addressable market sizes than Singapore and will be a long-term growth driver for the company.
At its current share price of S$0.69 per share, HRnetgroup Ltd has a low price-to-earnings ratio of 13.6. Cash alone makes up around 35% of its entire market capitalisation. That gives it an enterprise value of S$383.2 million, which, in turn, translates to an EV-to-EBITDA multiple of just 5.4. For a company with a long track record of growth, a healthy cash position, and a growing addressable market, its shares at current prices look like a sweet deal to me.
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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 HRnet Group Ltd and Haw Par Corporation Ltd. Motley Fool Singapore contributor Jeremy Chia owns shares in HRnet Group Ltd.