Delisting has become the new normal in China's stock market, and investors can position themselves for potential privatization targets
In May this year, Acrophyte Hotel Trust's stock price surged by 45% and is considering privatization, becoming the focus of the Singapore capital market. UOB Kay Hian and Phillip Securities Research pointed out that privatization has become the new norm in the Singapore stock market, with 15 companies initiating privatization offers by July. Analysts believe that stocks such as Avarga, Samudera Shipping, and Quanhe Offshore have the potential to be privatized, with Samudera Shipping offering a dividend yield of up to 9.3%. Investors may focus on undervalued stocks and real estate investment trusts with healthy balance sheets
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In addition, UOB Kay Hian also believes that three other stocks are worth paying attention to: Avarga, Samudera Shipping, and CH Offshore. The main reasons are their high net cash to market value ratios and stock prices that are below book value, indicating the possibility of privatization. Furthermore, Samudera Shipping's current stock price is only five times its 2024 price-to-earnings ratio, with a dividend yield as high as 9.3%, making this stock even more attractive.
UOB Kay Hian believes that China Sunsine Chemical and Valuetronics have ample cash and attractive valuations, allowing investors to earn decent dividend yields while waiting for potential good news (such as acquisitions or revaluations).
Analysis: Focus on Undervalued Stocks and Real Estate Investment Trusts
Phillip Securities recommends focusing on real estate investment trusts (REITs) with healthy balance sheets and strong shareholder support, such as Elite UK REIT. Asset rotation, capital recovery, and potential interest rate cuts are the main catalysts driving the sector's rebound.
Acrophyte Hotel Trust is not an isolated case. Recently, UOB Kay Hian and Phillip Securities Research released reports indicating that privatization has become the new norm in the Singapore stock market.
On the other hand, Phillip Securities Research believes that the local REIT index fell by 1.9% in May, marking a decline for the second consecutive month. Currently, the valuation of the REIT sector is attractive, with a forward dividend yield spread of 3.9%, higher than the long-term average, and a price-to-net asset value (P/NAV) ratio of 0.85 times, at a historical low.
Analysis: Focus on Three Factors When Positioning for Potential Delisting Targets
UOB Kay Hian believes that the recent launch of the S$5 billion Equity Market Development Programme (EQDP) by the Monetary Authority of Singapore is expected to improve market liquidity and indirectly support the revaluation of small and medium-sized companies.
Looking ahead, both UOB Kay Hian and Phillip Securities Research believe that the Singapore capital market is undergoing a structural adjustment period, with trends of delisting and privatization likely to continue in the short term. However, in the medium to long term, attention must still be paid to macroeconomic trends, interest rate changes, and capital flows. Privatization may present arbitrage opportunities, allowing investors to uncover structural opportunities while managing risks and capturing the benefits of capital market transformation.
As for stocks that may be privatized next, UOB Kay Hian has identified 19 companies with net cash accounting for at least 35% of their market value, and believes that five of them may be undervalued due to becoming privatization targets Analysts remind investors to pay attention to three major factors when positioning potential delisting targets: first, the shareholding ratio and statements of the controlling major shareholder; second, the company's net cash level and valuation discount degree; third, the premium level of the acquisition offer and market acceptance.
As of July 4 this year, 15 companies have initiated privatization offers, nearing last year's total of 18. The peak period for delistings in the past 12 years was in 2019, when there were 34 privatization offers.
Among last year's delisting offers, Isetan Singapore had the highest premium at 174%; so far this year, Singapore Paincare has the highest premium at 78%.
In an environment of declining interest rate expectations, the REIT sector is expected to see a valuation recovery.
In May this year, Acrophyte Hospitality Trust, held by wealthy couple Tang Yigang and his wife, saw its stock price soar 45% in a single month. The trust initiated a strategic review and considered privatization, making this stock one of the most eye-catching in Singapore's capital market recently.
UOB Kay Hian pointed out that low valuations, reduced funding needs, and support from new partners are the main reasons driving major shareholders of listed companies to initiate delistings. Moreover, the vast majority of stocks targeted for privatization have prices below or close to their book value, with about 80% of stocks receiving privatization offers last year and this year fitting this characteristic
