The bear has bare its fangs on our local stock market. Following the plunge in US equities on Wednesday overnight, local benchmark Straits Times Index (STI) plunged as much as 3 percent to 3,035.2 on Thursday, 11 October 2018. The STI managed to regain some ground to close 2.7 percent in the red at 3,047.
The plunge in stocks worldwide was attributed to spiking US bond yields. Investors seem to be pricing in the risks of an imminent recession if interest rates continue to rise and push up borrowing costs.
For the time being, the STI is being supported technically by the critical 3,000-point psychological level, giving local investors some reprieve. However, investors are not in the clear yet. At the current level, the STI is 16.5 percent down from its peak of 3,641.65 which was seen in April 2018. Officially, STI just need to decline 3.5 percent more to be in the bear’s embrace.
Warren Buffett On Hamburgers
For the value investors though, this could be the best opportune time to seek a bargain.
To quote, here is a one of the many Warren Buffett analogies for bad days in the stock market: To refer to a personal taste of mine, I’m going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household. When hamburgers go up in price, we weep. For most people, it’s the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don’t like them anymore.
CapitaLand managed to buck the trend when developer stocks re-rated downwards in July as the government rolled out cooling measures to curb the local enbloc fever. Due to its muted activity during the heat, the stock managed to recover from the lows of $3 in July 2018 to $3.45 by August.
However, the recent bloodletting has seen the stock retraced back to $3.10. At the current level, it is once again attractively priced at 0.7 times to book value and 9.1 times earnings. Based on last year’s dividend of $0.12 per share, the stock offers a yield of 3.9 percent.
CapitaLand is also mainly entrenched in China and Singapore. While investors worry that a sharp rise in US interest rates could drive down demand for properties and asset prices, the impact is limited in China as the central government restricts capital outflow. At the same time, China’s central bank has also slashed capital requirements which should lower the costs of borrowing domestically.
The story for local telcos in past two years have been a woeful one as investors contemplate the prospective entrance of TPG Singapore’s services would cause even more intense competition to decimate on the industry’s profitability.
For local telco leader Singtel, its stock has traded down from its peak of about $4.3 to $3.15 today. However, better news has been surfacing recently and Singtel could return back to growth trajectory in coming quarters.
Amongst these “good news”, Keppel Corp and SPH have collectively launched a takeover bid for Axiata’s 28.7 percent stake in M1. Collectively, Keppel Corp and SPH already owns 32.8 percent of M1 and the takeover bid sparked talks that a new major shareholder could dictate a more profit-driven strategy which would help start-off a more benign environment for local telcos again.
Over in Australia, Singtel’s core market, Vodafone Hutchison Australia and TPG Telecom has also announced plans to merge. The move would consolidate Australia’s telco industry into three players, with Telstra and Singtel’s Optus being the other two telco operators. As part of the merger agreement, Australian-listed TPG Telecom also spun-off TPG Singapore as an independent company, raising questions about the capacity of which TPG Singapore could finance its operations in Singapore.
Notwithstanding that, Singtel is also investing heavily in other growth segments of cyber-security and digital marketing to stand out amongst its peers. At the share price of $3.15, the stock is trading at just price-to-earnings of 9.9 times, with a dividend yield of 5.8 percent. Management has also indicated that it would maintain dividend payout this financial year.
Recall when Genting Singapore was impacted by impairments of trade receivables, large derivative losses and foreign-exchange losses in 2015?
Well, the recent sell-off has seen Genting Singapore trading down towards “crisis” valuations despite better profitability and improving fundamentals. For one, the integrated resort (IR) operator has seen healthy recovery in both its VIP and mass markets visitors.
Financial performance-wise, Genting Singapore reported earnings of $394.8 million in 1H18. In retrospect, this was much more than full-year earnings of $75.2 million in FY15.
Year-on-year, 1H18 earnings was 21.7 percent higher than 1H17 earnings of $324.4 million as the group has fully redeemed its perpetual capital securities. In other words, ordinary shareholders are entitled to all of Genting Singapore’s net profit.
At current price of $0.965, Genting Singapore is trading at just 16.4 times to earnings with a dividend yield of 3.7 percent. With Genting Singapore being one of the contenders for Japan’s IR license, after Japan’s legislation passed the bill to legalise just three casino resorts in the country (oligopoly market structure), the stock offers significant potential for growth at a bargain.