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These 3 Blue Chips Are Near Their 52-Week Lows. Are They Cheap?

Uncertainty surrounding the global economy has sent the Straits Times Index (SGX: ^STI) down some 6% thus far in August. That has caused some index shares to sell at their respective 52-week low share prices. Here, let’s explore three blue chips that are selling at the bottom, which could provide some opportunities for contrarian investors to investigate further.

The bottom chips

The three blue chip shares that are selling near their respective 52-week lows are Singapore Airlines Ltd (SGX: C6L), Sembcorp Industries Limited (SGX: U96), and Hutchison Port Holdings Trust (SGX: NS8U).

Company Share Price 52-Week Low Price Price-to-Earnings (P/E) Ratio Price-to-Book (PB) Ratio Dividend Yield
Singapore Airlines S$8.94 S$8.90 16 0.8 3.3%
Sembcorp Industries S$2.23 S$2.21 12 0.6 1.8%
Hutchison Port Holdings Trust S$0.253 S$0.249 N/A 0.5 12.0%

Source: S&P Global Market Intelligence (data as of 16 August 2019; unit price of Hutchison Port Holdings Trust has been converted to Singapore dollars from US dollars)

Singapore Airlines (SIA) had a mixed fiscal first quarter. Even though revenue rose 6.7%, net profit attributable to shareholders tumbled 20.4%.Source: SIA earnings presentation

The higher revenue was largely on the back of higher passenger flown revenue due to traffic growth. Despite the increase in the top line, the bottom line couldn’t keep up. It fell mainly because of a higher share of losses from associated companies and net finance charges.

Going forward, SIA warned of some headwinds to its business due to the trade tensions and shaky world economy:

“Passenger bookings in the forward months are tracking closely against capacity growth, supported by premium cabin traffic to key markets. Air freight demand has softened amid ongoing trade disputes and uncertain global economic conditions. These headwinds also cloud the outlook for passenger demand over the longer term. The Group will actively capture revenue opportunities and exercise cost discipline to boost profitability in this challenging macroeconomic environment.”

As for Sembcorp, its second-quarter revenue fell 29% year on year to S$2.4 billion, but its earnings improved 20% to S$98 million. Sembcorp kept its interim dividend steady at S$0.02 per share. (Learn more about the conglomerate’s latest earnings.)

Hutchison Port Holdings Trust had a poor quarter overall thanks to global trade tensions; revenue and other income for its second quarter fell 1.4%, while net profit tumbled 19.7%. With that, distribution per unit plunged by some 30% to HK$0.06, down from HK$0.0852 a year back.

Just like SIA, Hutchison Port Holdings Trust warned of the challenges ahead:

“Outbound cargoes to the US remained weak in the second quarter of 2019 and it is expected to be volatile in the second half of 2019 as the US/China trade dispute continues. Given the uncertainties in the global trade outlook, HPH Trust management remains cautious about future cargo trends and will continue to adhere to cost discipline and efficiency improvements in order to face the challenges ahead.”

Are the blue chips on sale?

With the blue chips selling near their respective 52-week lows, are they cheap?

To get a quick answer, we can compare the valuation of the SPDR STI ETF (SGX: ES3), an exchange-traded fund that tracks the fundamentals of the Straits Times Index, to the valuation of the respective companies.

As of 16 August 2019, the SPDR STI ETF had a P/E ratio of 10.3, a P/B ratio of 0.9, and a dividend yield of 3.8%. Based on the P/B ratio alone, all three companies look undervalued. However, before buying any of these blue chips, investors should investigate further on whether they are indeed worth purchasing amid the tough economic conditions.

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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 Sudhan P doesn’t own shares in any companies mentioned.