Exits from SGX will continue, but who's next?

BATTERED by a regional economic downturn and dismal trading volumes, Singapore's stock market is seeing a raft of well-known names leave.

And going by the criteria of low public ownership ratios and depressed valuations, numerous companies are ripe for a takeover.

Larger Singapore Exchange (SGX) firms that fit the profile of companies potentially going private include Fraser and Neave (F&N), Keppel T&T, Genting Hong Kong, Guocoland, NSL, Chip Eng Seng and Boustead Singapore. Smaller firms include Challenger Technologies, Soo Kee Group, Design Studio Group, and Cheung Woh Technologies.

However, some firms contacted are not thinking about delisting yet.

Recent listing homegrown jewellery retailer Soo Kee is trading at less than half its initial public offering price of 30 cents. But it is still profitable and growing its revenues. CEO Daniel Lim Yong Sheng told BT that going public has improved the company's corporate governance while giving it additional resources and a better image.

"A listing is a platform for staff to have some ownership of the company. We also stand a better chance to attract better talent, not just key management but also down the line.

"So if you ask me if we regret listing, the answer is no."

Other firms are not so sure. Lifestyle products group OSIM International, listed since 2000, has effectively gone private after founder Ron Sim made an offer for the firm in March.

A consortium has been trying to take private traditional Chinese medicine firm Eu Yan Sang, listed in Singapore on and off since 1973. The current company was listed in 2000.

Another name listed in the bumper year of 2000 and which might go off the market is crane owner Tat Hong. It is trading at half its book value with a substantial impairment on the way. It said in mid-May that it was still in talks on a possible sale of the company, though there is no certainty that any transaction will result.

Analysts said that companies that are likely to delist would be trading at depressed valuations, though opinions vary on whether they need to be profitable.

CIMB head of research Kenneth Ng suggested screening for stocks with good cash flow, but trading below book values, and with management holding a high percentage.

Terence Wong, CEO of investment firm Azure Capital, said that some companies that raised funds when prices were high could take the opportunity to buy out the company while prices are low. He suggested looking at companies trading at low price to earnings ratios and at low prices relative to history.

Kelvin Tay, regional chief investment officer at UBS Wealth Management, suggested looking for stocks with a public float of under 20 per cent of issued capital, trading at a 30 per cent discount to its net assets.

According to Bloomberg, using various delisting criteria permutations, F&N could be a potential target, given its free float of 12 per cent. The firm, known for its 100 Plus isotonic drink, Magnolia milk and Seasons tea brands, is trading near its 52-week low of S$1.90 a share. It has more than S$800 million in cash after accounting for debt.

Even if it stays listed, analysts have been speculating that Thai Beverage, which owns 29 per cent of F&N, will swap its stake in property play Fraser Centrepoint Limited for the 59 per cent of F&N owned by related company TCC Assets. The swap will "make ThaiBev a much cleaner beverages company and remove its exposure to property", Credit Suisse said in a May 11 note.

Keppel T&T, the holding company for telco M1 along with logistics and data centre businesses, has a free float of under 20 per cent.

The company's share price performance has been uninspiring. Analysts have also been speculating for some time that parent Keppel Corp could take it private and sell off parts of the firm, notably M1, in a corporate restructuring.

Guocoland, a developer with a long listing history on SGX, is also trading near its largest discount to its book value in five years of around 40 per cent. It has a free float of under 20 per cent and is trading near its 52-week low.

Another old name with a small free float and even more limited liquidity is NSL, formerly known as NatSteel. The industrial group now makes building materials such as prefabricated bathrooms and dry mix plaster and mortar products. The company is 81 per cent owned by 98 Holdings, a consortium led by hotelier Ong Beng Seng. It has net cash of around S$300 million, which is more than half of its market capitalisation.

Other larger companies that show up are engineering and real estate firm Boustead Singapore, which is trading near its 52-week low, and cruise ship operator Genting Hong Kong, majority owned by Malaysian tycoon Lim Kok Thay.

Genting Hong Kong, which recently acquired the Zouk nightclub brand, has traded steadily lower in recent years. It is trading at half the value of its net assets. It has a net cash position of US$1.2 billion - almost half of its market capitalisation - after selling a stake in an associate.

Smaller firms also show up on BT's screens. Challenger Technologies, which operates a chain of IT stores, has a limited public float and trading liquidity. It has S$42 million of cash, no debt, and a return on equity of more than 20 per cent.

Rig operator Swissco Holdings, listed since 2004, is trading at a multi-year low, hit by negative sentiment around the oil and gas industry.

Precision engineering firm Cheung Woh Technologies, listed since 2002, is trading near half its book value and six times its 2015 earnings.


This article was first published on May 23, 2016.
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