5 blue chips near their 52-week lows

A stock near its 52-week low means that it is trading near the lowest price within a one year period. Many value investors like to use this indicator to filter for blue chip stocks that have currently fallen out of favour.

By and large, they are trying to combine both quality companies and low prices to find hidden gems in the market. In fact, this is also a screening criterion utilized by Walter Schloss, a legendary value investor who worked alongside Warren Buffett in the past.

He searched for bargains which have fallen hard with strong track records and balance sheets. Below is a quote that pretty sum summarizes his investment strategy:

"If a business is worth a dollar and I can buy it for 40 cents, something good may happen to me."

- Walter Schloss

With that in mind, let’s delve into the 5 Blue Chips near their 52-week lows in the past month with 2 simple criteria (data as of 27 June 2019):

  • Market capitalizations more than S$1 billion
  • Current price trading within 10% of its 52 week lows.

Sourced from Shareinvestor’s Webpro

And below are the 5 companies we have cherry picked among the list:

1. Sembcorp Industries Ltd (U96.SI)

Sembcorp Marine is engaged in the production and supply of utilities services, terminaling and storage of petroleum products and chemicals. The company operates in 4 major segments - Utilities, Marine, Urban Development, and Others/Corporate.

  • The Utilities segment focuses on the provision of centralised utilities and energy to industrial, commercial and municipal customers. Its activities in the energy sector include power generation, process steam production, as well as natural gas importation.
  • The Marine segment focuses principally on providing integrated solutions such as repair, building and conversion of ships/rigs for the offshore and marine industry.
  • The Urban Development segment owns, develops, markets and manages integrated urban developments consisting of industrial parks, as well as business, commercial and residential space in Asia.
  • The Others/Corporate segment consists of businesses mainly relating to minting, design and construction activities, offshore engineering and others.

Sourced from Shareinvestor’s Webpro

Looking at the stock chart above, Sembcorp Industries last traded at S$2.44, close to its 52 week low of S$2.32. It was a far cry from the S$3.10 high during October 2018.

What could have contributed to the fall in Sembcorp Industries’ share price over the past year? We zoom into some of the possible reasons below.

Financial Snapshot sourced from ShareInvestor’s Webpro

Sembcorp Industries’ overall financial snapshot shows a poor balance sheet with high debt to equity and negative free cash flow for 2 years or more.

In addition, the company is also suffering from low gross profit and earnings margins for 3 years. Dividend payouts are also on the slide over the past 5 years.

One more impetus that probably led to the share price decline is its intertwined fate with its subsidiary – Sembcorp Marine. The 61%-owned subsidiary as of 31 Dec 2018 has been a drag for Sembcorp Industries financial results due to the plunge in oil prices.

Furthermore, Sembcorp Industries is extending a S$2 billion subordinated loan facility to Sembcorp Marine to strengthen its financial position amid the downturn in the global offshore and marine (O&M) industry.

On the bright side, Sembcorp Industries has registered increased revenue and profits in the last 2 years. Based on its share price of S$2.44 per share, the group trades at around 14.3 times its price-to-earnings and has a trailing dividend yield of 1.6%.

2. Genting Singapore (G13.SI)

Genting Singapore Ltd is a Singapore-listed casino and integrated resorts owner which owns the following flagship destinations:

  • Resorts World Sentosa - an award-winning destination resort and one of the largest integrated resort destinations in Asia
  • S.E.A. Aquarium (one of the world's largest Oceanariums),
  • Adventure Cove Waterpark,
  • Universal Studios Singapore theme park and Hotels
  • MICE facilities, celebrity chef restaurants and specialty retail outlets.

Sourced from Shareinvestor’s Webpro

The above stock chart shows that Genting Singapore last changed hands at S$0.925, close to its 52 week low of S$0.855. The price range between the 52 week low and high is almost 46.5 cents, around 50% of the latest transacted price which indicates a big volatility range in the past year.

Before we check out the reasons for the dip, let’s take a look at the financial health of this stock:

Financial Snapshot sourced from ShareInvestor’s Webpro

With the above positive reflection of Genting Singapore’s financial health, there is possibly 3 reasons to the dip in Genting Singapore’s share price over the past year.

  1. The 1st one is the Singapore government’s 3 years extension of Genting Singapore’s gaming license provided that the company ‘invest’ a staggering S$4.5 billion to develop Resorts World Sentosa (RWS).
  2. In addition, a 50% increase in casino entry levies is set in place for Singaporeans and permanent residents which will further lower Genting Singapore’s margins in future.
  3. A slowing Chinese economy coupled with multi-year clampdown from the Chinese authorities are leading to slower growth among all the casinos.

That said, many analysts are still positive on Genting Singapore as seen below. 22 analysts covering Genting Singapore has given a mean target price of S$1.16, translating into an upside of 25.6%.

To add on, Japan is currently approving 3 casino licences and expected to issue a request for proposals in the fourth quarter 2019. Genting will bid for all three and hopes to win one.

Genting Singapore executive chairman Lim Kok Thay is confident about being picked to build a Singapore-style integrated resort in Japan. He told shareholders at the annual general meeting on 17 April 2019:

"Fortunately for us, the Japanese government has made it very public that they will use the Singapore model.”

He continued saying:

“We have become the top tourist draw in Singapore and also contribute to employment and the local economy. I believe that is exactly what the Japanese government is looking for, whereas our other competitors bar one who is across the road wouldn't be in the same position to claim that they can do it."

Based on its share price of S$0.925 per share, the group trades at around 14.7 times its price-to-earnings ratio and has a dividend yield of 3.8%.

3. Singapore Airlines Ltd (C6L.SI)

Singapore Airlines is the pride of Singapore as it is our local flagship airline engaging in passenger and cargo air transportation. It distinguishes among the other airlines by being a full member of the global Star Alliance (world's premium airlines) and operates a young and modern fleet.

The Singapore Airlines route network extends across 105 destinations in 37 countries, including those served by its subsidiaries, Singapore Airlines Cargo and SilkAir. The Singapore Airlines Group has over 20 subsidiaries which include

  • SIA Engineering Company,
  • Scoot,
  • Singapore Flying College
  • Tradewinds Tours and Travel

Sourced from Shareinvestor’s Webpro

Coming from around S$11 a year ago, SIA’s share price has fallen steadily to S$9.30 at the time of writing. While it has rebounded slightly over the past month, it is still trading near its 52 week low of S$9.01.

What could have contributed to the tumble in Singapore Airlines’ share price over the past year? We dig deeper into some of the possible reasons below.

Financial Snapshot sourced from ShareInvestor’s Webpro

Our financial snapshot above sends a grim picture of SIA’s financial health. With only a green smiley face indicating that revenue has increased over the past 2 years, the other smiley indicators are showing “neutral and below”.

For one, it has a high debt to cash flow for the most recent year and poor current ratio for 3 consecutive years. SIA also suffers from low profit margins and negative free cash flow which probably explains why its dividend payments are decreasing over the last 5 years.

In addition, the on-going trade war also caused goods and services to be more expensive, which then affects negatively the worldwide supply chains and air travel.

Based on its share price of S$9.30 per share, the group trades at 16.1 times its price-to-earnings and has a dividend yield of 3.2%.

4. Dairy Farm International Holdings USD (D01.SI)

Dairy Farm is a leading pan-Asian retailer with 4 main business segments: Food, Health and Beauty, Home Furnishings, and Restaurants. In Singapore, Dairy Farm is the owner of stores such as Guardian, Cold Storage, Giant Hypermarket, and 7-Eleven.

In addition, the group also operates many different formats under various brands including Yonghui in mainland China, Hero in Indonesia, IKEA in Hong Kong, Indonesia, Macau, Taiwan. At 31st December 2018, the Group and its associates and joint ventures operated over 9,700 outlets and employed over 230,000 people.

Sourced from Shareinvestor’s Webpro

Dairy Farm’s share price has not been performing well in the past year, down around 18%. At the price of USD 7.23, it is trading pretty close to its 52 week low at S$7.02 on March 2019.

What could be some of the causes of its share price decline over the past year? We did some research and found out some possible reasons stated below:

Financial Snapshot sourced from ShareInvestor’s Webpro

As shown above, while Dairy Farm has enjoyed increased revenue in last 5 years and good gross margins of 20-40% in last 3 years, things are not looking bright for the other financial metrics.

For one, there is a critical profit drop of over 60% in the latest year and ROE is decreasing by 5% a year over last 3 years. To add on, its debt load is acting up with high debt to cash flow for most recent year and poor current ratio for 3 consecutive years.

Last but not least, you can see that the low margins of around 3-4% were impacted again, heading down to a mere 0.8% margin in FY2018 results. As a result, its dividend payout ratio has hit 308% of its earnings in FY2018 and is clearly unsustainable if the company continue to operate in such low margins.

Based on its share price of US$7.23 per share, the group trades at 1.07 times its price-to-book value and has a dividend yield of 2.9%.

5. Starhub (CC3.SI)

With M1 privatised, Starhub is now one of Singapore's two listed telecommunication companies apart from Singtel. The group offers communications, entertainment and digital solutions using its fibre and wireless infrastructure.

StarHub has four key business divisions — mobile services, Pay TV, broadband services, and enterprise services. While people may be more familiar with the 1st 3 consumer offerings, Starhub is more focused on the enterprise services segment which provide corporate and government clients’ solutions incorporating artificial intelligence, cyber security, data analytics, Internet of Things and robotics.

Sourced from Shareinvestor’s Webpro

Starhub last changed hands at S$1.54 near its 52 week low at S$1.46 just a month ago. If you look closely at the chart above, the share price gapped down on 15 Feb 2019 after its annual results was released and went downhill ever since then.

Below is the financial health of Starhub at a glance.

With that in mind, we have observed 2 key reasons why Starhub’s share price was been badly hit in the past year.

Firstly, Starhub is facing fierce competition and numerous headwinds in the Telco sector. The shift to lower-cost data plans (Sim only) and the incoming 4th Telco TPG with its lower cost plans is hurting the telco’s margins.

Furthermore, PayTV is suffering from consumers change in preferences for other offerings like Netflix and the upcoming Disney+. Starhub’s expansion into the cyber-security segment will also lead to near term losses before things get better.

Secondly, Starhub’s dividend analysis paints a grim outlook.

Starhub has been dishing out a 20 cents dividend consistently from FY2012 to 2016 and saw a dip from then on as earnings per share has been on the decline.

Dividend payout ratio also exceeded 1x (means the company paying out more dividends than what they earn) from Dec 2016 onwards and reached a high of 1.43x in FY2018.

To stem all the unsustainable dividend payments, Starhub has decided to change its dividend policy and offer lower dividends going forward as extracted from the results announcement:

“As part of the transition to the new dividend policy, the Group intends to pay a dividend of at least 9 cents per ordinary share for FY2019, at a rate of 2.25 cents per quarter. Any payment above 9 cents in line with the new dividend policy would occur in the last quarterly payment.”

Based on its share price of S$1.54 per share, the group trades at 13.7 times its price-to-earnings ratio and has a dividend yield of 10.4%.

Conclusion

While investors like to source for bargains by fishing for stocks trading at 52 week lows, they have to also do their homework to examine the company’s financial health and prospects.

Ultimately, a company’s share price will follow its fundamentals in the long run and if things aren’t looking rosy, the share price can continue to decline no matter how low it has gone too.

Happy investing!

Check out ShareInvestor’s webpro to access timely updates to empower your investment research - http://www.shareinvestor.com/sg!

 

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