These 3 Straits Times Index Stocks Are Currently Undervalued
The companies in the Straits Times Index (SGX: ^STI) are so well known that it would be hard to fathom that some of the index stocks would be undervalued. The truth is, there are a few blue-chip companies with a valuation that is indeed lower than that of the market.
As at 10 January 2018, the SPDR STI ETF (SGX: ES3), an exchange-traded fund which can be taken as a proxy for the Straits Times Index (SGX: ^STI), had a price-to-earnings ratio of 11.54, and a price-to-book ratio of 1.35.
The trio of Hongkong Land Holdings Limited (SGX: H78), Jardine Strategic Holdings Limited (SGX: J37) and Jardine Matheson Holdings Limited (SGX: J36) are currently undervalued if we compare their valuations to the market’s.Source: S&P Global Market Intelligence (Data as at 10 January 2018)
The first of the lot, Hongkong Land, is going at a 50% discount to its book value. Founded in 1889, Hongkong Land owns and manages around 800,000 square metres of commercial and residential properties across China, Southeast Asia, and Hong Kong. The company is a member of the Jardine Matheson group.
For the six months ended 30 June 2017, Hongkong Land’s profit attributable to shareholders surged 147% year-on-year to US$3.1 billion, mainly due to revaluation gains seen in the firm’s investment properties. Without such gains, the underlying profit attributable to shareholders still grew 32% to US$517 million. The company’s net asset value increased 9% to US$14.54.
The chairman of Hongkong Land, Ben Keswick, said:
“The good performance of the Group’s investment property portfolio is expected to continue in the second half of the year, although the contribution from development properties will not benefit from further sales completions in Singapore.”
For the whole of 2017, the property developer’s shares rose 2.7%, as compared to the Straits Times Index’s gain of some 18%.
Connected to Hongkong Land, Jardine Strategic holds most of the Jardine Matheson group’s significant listed interests, including a 57% stake in Jardine Matheson Holdings. Other than Hongkong Land, Jardine Strategic has stakes in other Singapore-listed companies, such as Dairy Farm International Holdings Ltd (SGX: D01), Jardine Cycle & Carriage Ltd (SGX: C07) and Mandarin Oriental International Limited (SGX: M04).
Jardine Matheson, in turn, owns 84% of Jardine Strategic. An overview of the Jardine group of companies can be found here.
To have a better understanding of how Jardine Matheson makes money, we can see the breakdown of its 2016 underlying profit below. It also shows the various sectors which contributed to the company’s bottom line.
Source: Jardine Matheson Holdings 2016 annual report
Jardine Strategic’s shares climbed by 10.1% in 2017, while Jardine Matheson’s stock price put on just 1.6%.
The Foolish bottom line
Even though the three interconnected companies seem cheaper than the market, investors should still perform their own research on them before investing any hard-earned money. The purpose of this article is merely to point potential investors in the right direction.