Nine China state-owned firms listed on SGX
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SGX’s update comes on the heels of the launch of the Shanghai-Hong Kong stock-trading link
Cai Haoxiang
19 November 2014
The Singapore market contains nine stocks that are wholly or partially-owned by state-owned enterprises (SOEs) in China, the Singapore Exchange (SGX) told investors in a market update on Tuesday.
Spanning sectors such as pharmaceuticals, water purification, shipping, property, commodities and industrials, they have a total market value of S$8 billion and are trading on average at 1.2 times their book value, SGX said.
The market update comes as a landmark stock-trading link between the Shanghai and Hong Kong markets kicked off on Monday, enabling retail investors around the world to get a piece of China stocks that were previously less accessible.
On SGX, the largest of the nine stocks with SOE links is Tianjin Zhongxin Pharmaceutical, which has a market cap of about S$2 billion. The company sells Chinese patent medicines, Chinese medicinal materials, pharmaceutical raw materials and Western medicines.
Other SOE-linked stocks are water-purification counter SIIC Environment and shipping firm Cosco Corporation (Singapore).
But the only stock to make a positive return year-to-date as of Nov 17 is China Merchants Holdings (Pacific), which owns toll roads in China and has an indicative yield of 7.8 per cent.
CIMB Research has an “add” rating on this stock, and a target price of S$1.10. The brokerage said in a Nov 7 note that it likes the company’s “sustainable high dividend yield, low finance costs and good management quality”.
DBS Group Research said in a Nov 4 note that Cosco was “fully valued”, with potential downside risks to its target price of S$0.62. It said the stock had low earnings visibility and profitability.
There has been recent corporate activity involving China SOEs and companies here.
This year, a unit linked to state-owned conglomerate China Everbright acquired a stake in Chongqing developer Ying Li International Real Estate; China conglomerate Citic also announced plans to take a majority stake in United Envirotech.
China International Marine Containers (CIMC) recently injected its subsidiary Tianda Group into airport logistics provider Pteris Global in a reverse takeover deal.
SGX said that, according to China statistics, there were about 160,000 SOEs in China in 2012.
Voyage Research analyst Ng Kian Teck said that given the broad definition of what makes an SOE, investors have to be precise in determining whether an SOE has a sustainable competitive advantage. Investors should also compare price-to-earnings ratios, he said.
SOEs that command a premium will have scale, which makes them more defensive investments in the event of a downturn; they may also be monopolies or operate within an oligopolistic structure, as is the case with China’s national oil companies, he said.
“Those that are here (in Singapore) are somewhat like subsidiaries, their core business is not that strategic, and will lack the kind of premium that investors will want to put inside,” he said.