Stocks can generally be classified into two categories – value and growth. Growth stocks refer to companies that can increase their revenue and earnings over time, while value stocks are stocks that are undervalued based on their current share price.
In this article, I’ll highlight two deep value stocks in Singapore that I believe are underappreciated by market participants now.
Haw Par Corporation Ltd (SGX: H02)
Known for its Tiger Balm brand, Haw Par Corporation is perhaps one of the most under-appreciated stocks in the market.
The group’s healthcare division, which consists of a range of products under its Tiger Balm brand has seen its profit grow from S$14.4 million in 2007 to S$77.3 million in 2018. Tiger Balm is now sold in over 100 countries worldwide.
Yet its healthcare is just the tip of the iceberg.
As of 30 June 2019, Haw Par was sitting on S$383.7million in net cash and S$2.56 billion in “strategic investments” which comprise mostly of marketable securities of United Overseas Bank Ltd (SGX: U11) and UOL Group Limited (SGX: U14). Put together, its cash and shares are worth S$2.94 billion.
Based on Haw Par current share price of S$13.34, it has a market cap of S$2.97 billion. Its cash and shares make up almost its entire market cap, meaning investors who pick up shares now are getting its healthcare division for under a $100,000. For a segment that is earning north of S$70 million, that seems to be a superb deal.
It is also worth noting that both UOB and UOL are also not overly expensive. As of the time of writing, shares of UOB and UOL trade for 1.06 times and 0.63 times their book values respectively. Given that UOB has shown steady growth in the past and UOL trades well below its book value, Haw Par Corporation could stand to gain when these shares appreciate in value. I believe market participants will eventually smarten to the fact that Haw Par is heavily undervalued at the moment. Patient investors who are willing to play the long-game will likely be well-rewarded when that time comes.
HRnetGroup Ltd (SGX: CHZ)
The recruitment firm is one of the companies that have been hit hard by economic uncertainty. Its revenue in the second quarter of 2019 dipped 0.5%, while net profit to shareholders tumbled 11.5%.
Its core business was impacted by muted hiring, particularly in Singapore. The absence of government subsidies and an unrealised loss of investments further exacerbated the year-on-year decline.
It is, therefore, no surprise to see its share fall. However, I believe market participants are overly pessimistic about the company. Its stock now trades at S$0.57 per share, some 40% below its peak and well below its initial public offering price of S$0.90.
HRnetGroup has a brilliant track record of growth, starting from just a four-man operation some 25 years ago, to become the largest recruitment firm in Asia, excluding Japan.
Despite the challenging climate, HRnet’s business is still highly profitable, generating S$30.8 million in net profit to shareholders and S$27.8 million in free cash flow in the first half of 2019.
It is also sitting on S$271 million in cash and its management has shown its willingness to put that cash to use to further enhance its market-leading position. The group recently increased its stake in UK-listed Staffline to 25.4%, with the hopes of leveraging on Staffline’s technology platform in the future.
Given HRnet’s business is dependent on the economy, it will also likely return to growth, when the economy recovers and companies start to expand again.
With shares trading near all-time lows, its valuation looks compelling. It sports a trailing dividend yield of 4.8% and has an annualised price-to-earnings ratio of just 9.3. Moreover, its net cash position makes up clost to 50% of its current market cap.
All things considered, it seems like a good time to add HRnet to your portfolio.
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 Haw Par Corporation Ltd and HRnetGroup Ltd. Motley Fool Singapore contributor Jeremy Chia owns shares in HRnetGroup Ltd.