Is the Singapore Stock Market Cheap or Expensive Right Now?
- Original Post from The Motley Fool Sg

Knowing how cheap the stock market currently is, can help us to simplify our investing decision.
There are two methods to find out if Singapore stocks are a steal or are in an overheated territory right now.
The first method is to compare the market’s current price-to-earnings (PE) ratio to the market’s long-term average PE ratio.
The second method is to determine the number of net-net stocks in the market.
With that, let’s check out if the local stock market is cheap or expensive.
The first method
The local stock market can be represented by the Straits Times Index (SGX: ^STI), or STI for short. It consists of the 30 biggest stocks in Singapore.
Since it is difficult to get the past daily PE ratios of the index, the PE ratios of SPDR STI ETF (SGX: ES3) can be used as a proxy. The SPDR STI ETF is an exchange-traded fund (ETF) that replicates the performance of the STI.
As of 14 May 2018, the SPDR STI ETF had a PE ratio of 11.6. Here are some of the other important PE ratios that we need:
1) The long-term average PE ratio: The STI’s average PE ratio from 1973 to 2010 was 16.9;
2) An instance of a high PE ratio for the STI: Back in 1973, the index’s PE ratio hit 35; and
3) An instance of a low PE ratio for the STI: At the start of 2009, the index was valued at 6 times its trailing earnings.
Based on the data above, it is realistic to say that stocks in Singapore are cheaper than average now.
The second method
In this method, we will look at the number of net-net stocks available in the local market.
A net-net stock is a stock with a market capitalisation that is lower than its net current asset value. The net current asset value can be calculated using the following formula:
Net current asset value = Total current assets – Total liabilities
In theory, a net-net stock is a steal as investors can get a discount on the company’s current assets, such as cash, after stripping off all liabilities. Moreover, the company’s fixed assets, such as properties, are thrown into the mix for free.
Logic holds that if a large number of net-net stocks than usual can be found in a stock market at a certain point in time, then stocks would likely to be cheap at that moment.
The following is a chart that shows the net-net stock count in Singapore since 2005:

Source: S&P Global Market Intelligence
Two things are worth noting about the chart.
Firstly, the second-half of 2007 saw the net-net stock count fall to a low of below 50. This was when the STI reached a peak before the Great Financial Crisis struck.
Secondly, the first-half of 2009 was when the net-net stock count hit a high of nearly 200. It was during this time that the STI reached its bottom during the crisis.
We can observe an inverse relationship from the chart – when the STI is at a peak, the net-net stock count is low, and when the STI is at a low, the net-net stock count is high.
As of 14 May 2018, there were 92 net-net stocks. This is comfortably between the net-net stock count’s peak-and-trough from 2005 till today.
A Foolish takeaway
We’ve walked through two ways to find out the state of Singapore’s stock market right now, and they both point to a similar conclusion. That is, stocks here are not that expensive, but they not in a deep bargain region either.
$STI(^STI.IN) $STI ETF(ES3.SI)

Read more
3 likes

Recommended & Related Posts

5 Key Takeaways From Singapore Press Holdings Limited’s FY2018 Results
- Original Post from The Motley Fool Sg

On 15 October,Singapore Press Holdings Limited (SGX: T39), or SPH in short, released its full-year earnings update for FY2018, the financial year ended 31 August 2018.


As a quick introduction for better context before I discuss the company’s latest results, SPHis one of Singapore’s largest media companies and is a constituent of our local stock market benchmark, the Straits Times Index (SGX: ^STI). Its businesses include newspapers, magazines, radio stations, books, events, advertising, as well as rental income from real estate. It also owns a 70% stake in SPH REIT (SGX: SK6U) and a 22% stake in Mindchamps Preschool Ltd (SGX: CNE).


1. Financial results


SPH had a mixed year. Net profit decreased by 19.7% in FY2018 due to the absence of a one-off gain from divestments in FY2017. Excluding that, SPH’s net profit improved by 2.4%.


The table below shows the key numbers from SPH’s income statement:




Source: Author’s compilation of data from SPH earnings update


It is perhaps worth noting the decrease in SPH’s operating revenue, which includes its core media business. But, SPH has also been diversifying its business through various investments; in FY2018, its investment income grew by 113.8% on divestments of some of its portfolio investments.


2. Business segment information


SPH breaks down its revenue contribution into three segments: Media, Property, and Others. The company’s core media business continues to struggle, with revenue declining by 9.6% to S$655.8 million. Property revenue also inched down by 0.7% to S$242.4 million.


SPH’s media arm has been facing declining print ad revenue and lower print circulation due to the proliferation of online news portals. However, the media business still remains profitable, despite year-on-year profit declines.


Revenue from the property segment was largely unchanged, as mentioned earlier. But profit from the property segment was down by 6.9% because of additional financing costs for the Woodleigh mall project, which is part of a joint venture. The table below summarises the revenue and profit breakdown of SPH by segment.




Source: Author’s compilation of data from SPH earnings update


3. Financial Position


Despite its poorer operating performance, SPH remains in a healthy financial position, with S$1.6 billion in borrowings, S$359 million in cash, and total assets valued at S$6.2 billion. Just S$176 million of SPH’s assets were considered intangible assets, and more than S$4 billion were investment properties.


This puts SPH’s debt to asset ratio at 25.8%, a healthy level in my opinion. It gives the company financial flexibility to make more property or business investments in the future. SPH also generated S$308 million in cash from operations in FY2018 before working capital changes.


4. Developments over the year


In FY2018, SPH made a few investments to diversify its business and to enhance its recurring income.


In the property segment, the company increased its stake in Chinatown Point to 30.68% and its subsidiary, SPH REIT, acquired The Rail Mall. The property segment also held the groundbreaking of The Woodleigh Mall and Residencesproject in March this year. Residential units are expected to be launched for sale soon.


In addition, SPH acquired a purpose-built student accommodation portfolio in the UK. In total, the accommodation assets have a capacity of 3,436 beds, and have a capitalisation rate of 6.3% based on the purchase price of €180.5 million. The accommodation portfolio will provide additional recurring income and is earnings-accretive for SPH.


SPH also has a stake in Orange Valley, an aged-care business. Orange Valley opened a new care centre at the start of 2018, and is looking to expand its aged-care business locally and overseas.


5. Current stock valuation and dividend yield


SPH’s directors proposed a final dividend of S$0.07 per share for FY2018, comprising a normal dividend of S$0.03 per share and a special dividend of S$0.04 per share. Together with an interim dividend of S$0.06, SPH’s total dividend for FY2018 is S$0.13 per share, which translates to a payout ratio of 76%. The company’s FY2018 dividend is 13% lower than FY2017’s dividend of S$0.15 per share.


At the time of writing, SPH’s share price is S$2.62, which translates to a price-to-book ratio of 1.24, price-to-earnings multiple of 11.7, and a dividend yield of 4.9%.


$STI(^STI.IN) $MindChamps(CNE.SI) $SPHREIT(SK6U.SI) $SPH(T39.SI)

Read more
How Cheap Is the Singapore Stock Market After the Market Sell-Off Last Week?
- Original Post from The Motley Fool Sg

The Straits Times Index (SGX: ^STI) shed 141 points, or 4.4%, to 3,069.2 last week. On Thursday (11 October) alone, the index tumbled 2.7%.


With such weakness in the stock market, local investors might be wondering how cheap it is right now. Knowing whether the stock market is cheap or expensive could help us make better investment decisions.


There are two methods to determine if Singapore shares are cheap now. The first way is to compare the market’s current price-to-earnings (PE) ratio to the market’s long-term average PE ratio. The second approach involves looking at the number of net-net stocks in the stock market.


PE valuation method


Since it is difficult to get the past daily PE ratios of the STI, the PE ratios of SPDR STI ETF (SGX: ES3) can be used as a proxy. The SPDR STI ETF is an exchange-traded fund (ETF) that tracks the fundamentals of the STI.


As of 12 October 2018, the SPDR STI ETF had a PE ratio of 10.7. Here are some of the other important PE ratios that we need:


1) The long-term average PE ratio: The STI’s average PE ratio from 1973 to 2010 was 16.9;


2) An instance of a high PE ratio for the STI: Back in 1973, the index’s PE ratio hit 35; and


3) An example of a low PE ratio for the STI: At the start of 2009, the index was valued at 6 times trailing earnings.


Based on the data above, we can see that Singapore stocks are currently cheaper than average.


Net-net stocks method


In this method, we will look at the number of net-net stocks available in the local stock market. To know what a net-net stock is, you can head to the explanation here. If there is a large number of net-net stocks than usual in the stock market, it could mean that stocks are cheap at that moment.


The following is a chart that shows the net-net stock count in Singapore since 2005:Source: S&P Global Market Intelligence


When the Straits Times Index is at a peak (such as in the second half of 2007), the net-net stock count is low. The reverse is also true: When the Straits Times Index is at a low (like in the first half of 2009), the net-net stock count is high. In the second half of 2007, the net-net stock count was below 50 while in the first half of 2009, the figure was at a peak of almost 200.


As of 12 October 2018, there were 107 net-net stocks. This sits comfortably between the net-net stock count’s peak-and-trough from 2005 till today.


The Foolish takeaway


Based on the two different valuation methods, we can safely conclude that stocks in Singapore are not that expensive, but they not extremely cheap either.


$STI(^STI.IN) $STI ETF(ES3.SI)

Read more
How Cheap Is the Singapore Stock Market After the Market Sell-Off Last Week?
- Original Post from The Motley Fool Sg

The Straits Times Index (SGX: ^STI) shed 141 points, or 4.4%, to 3,069.2 last week. On Thursday (11 October) alone, the index tumbled 2.7%.


With such weakness in the stock market, local investors might be wondering how cheap it is right now. Knowing whether the stock market is cheap or expensive could help us make better investment decisions.


There are two methods to determine if Singapore shares are cheap now. The first way is to compare the market’s current price-to-earnings (PE) ratio to the market’s long-term average PE ratio. The second approach involves looking at the number of net-net stocks in the stock market.


PE valuation method


Since it is difficult to get the past daily PE ratios of the STI, the PE ratios of SPDR STI ETF (SGX: ES3) can be used as a proxy. The SPDR STI ETF is an exchange-traded fund (ETF) that tracks the fundamentals of the STI.


As of 12 October 2018, the SPDR STI ETF had a PE ratio of 10.7. Here are some of the other important PE ratios that we need:


1) The long-term average PE ratio: The STI’s average PE ratio from 1973 to 2010 was 16.9;


2) An instance of a high PE ratio for the STI: Back in 1973, the index’s PE ratio hit 35; and


3) An example of a low PE ratio for the STI: At the start of 2009, the index was valued at 6 times trailing earnings.


Based on the data above, we can see that Singapore stocks are currently cheaper than average.


Net-net stocks method


In this method, we will look at the number of net-net stocks available in the local stock market. To know what a net-net stock is, you can head to the explanation here. If there is a large number of net-net stocks than usual in the stock market, it could mean that stocks are cheap at that moment.


The following is a chart that shows the net-net stock count in Singapore since 2005:Source: S&P Global Market Intelligence


When the Straits Times Index is at a peak (such as in the second half of 2007), the net-net stock count is low. The reverse is also true: When the Straits Times Index is at a low (like in the first half of 2009), the net-net stock count is high. In the second half of 2007, the net-net stock count was below 50 while in the first half of 2009, the figure was at a peak of almost 200.


As of 12 October 2018, there were 107 net-net stocks. This sits comfortably between the net-net stock count’s peak-and-trough from 2005 till today.


The Foolish takeaway


Based on the two different valuation methods, we can safely conclude that stocks in Singapore are not that expensive, but they not extremely cheap either.


$STI(^STI.IN) $STI ETF(ES3.SI)

Read more
The Essential Guide To The Recent Market Sell-Off, And How To Position Yourself Going Forward
- Original Post from The Motley Fool Sg

Last week was tough for stock markets around the world. In just two trading sessions on Wednesday and Thursday, theS&P 500– a major market index in the US – fell by more than 5%. Closer to home, Hong Kong’sHang Seng Indexfell by 3.5% in Thursday alone, while our local market barometer, theStraits Times Index (SGX: ^STI), fell by 2.7% on the same day.


There was a rebound last Friday, but tohelp you keep up with the latest developments, here’s a quick summary of what might have caused the sell-off, and what you, as an investor, should do nowand in the future.


What may be causing the stock market sell-off


There are a number of reasons that may have contributed towards the recent decline in stock prices. Four of those reasons were shared by my colleague Jeremy Chia in a recent article of his. Jeremy mentioned the following: (1) On-going geopolitical uncertainty related to the China-US trade war; (2) the International Monetary Fund’s recent downgrade of its global growth forecast from 3.9% to 3.7% for 2018; (3) the hike in interest rates by the Federal Reserve, the US’s central bank; and (4) Corporate-tax cuts no longer being a factor in corporate earnings growth in the US in 2019.


What to do now


Clearly, a market sell-off is not a pleasant experience. But, it should be, if you’re a net-buyer of stocks, as a decline in stock prices allows you to buy more shareson the cheap.


In any case, there are actions we can take to benefit from falling stock prices. In an earlier article of mine, I shared three ways for us to remain rational in the face of a market decline: (1) Know that stocks are bound to fall from time to time; (2) have an action plan; and (3) avoid looking at share prices unnecessarily.


My colleague Chin Hui Leong also recently shared three quick but useful tips to take advantage of a stock market correction: (1) Buy a share only because you want to own more of the business, not because its price has fallen; (2) you’re not going to get the lowest share price, so act fast; and (3) investing is a marathon, not a sprint, so pace yourself.


What next


My colleague David Kuo had a wide-ranging discussion with the chief investment officer of DBS Bank, Hou Wey Fook, during the recent market sell-off on what investors should do going forward. Topics covered during David’s chat with Wey Fook include:


(1) How high can interest rates go and could inflation be as big a problem as some have suggested?

(2) How would the the Sino-US trade dispute affect inflation?

(3) There have been numerous suggestions that the US bull market is growing long in the tooth; could the sell-off in shares be a sign that the US market has finally reached a top?

(4) Where are the best places to invest in 2019? What are the biggest concerns for 2019?


$STI(^STI.IN)

Read more
The Weekly Nibble: 3 Popular Articles of the Week
- Original Post from The Motley Fool Sg

Here are some of the most popular articles that have appeared on The Motley Fool Singapore’s website this week.


This Cash Cow Has a REIT-Like Dividend Yield of 6%


The company in this article is involved in the vehicular and non-vehicular testing space. It is offering a tasty dividend yield of slightly above 6%, as of Friday’s close. Therefore, income investors might be interested in this company due to the high yield.Do jump into the article to find out the identity of the company, and understand its dividend history, dividend policy, and sustainability of its dividend.


Here’s How Singapore Telecommunications Limited Makes Its Money


Investing in a business without knowledge of how the company makes money is like travelling to an unknown territory without a map.


In his piece, my Foolish colleague Lawrence Nga looks at three main ways Singapore Telecommunications Limited (SGX: Z74), the largest telco in Singapore with a 49% mobile market share and 4.1 million mobile customers, brings in the revenue.


3 Everlasting Investing Principles To Help You Survive Today’s Uncertain Stock Market


On Thursday, the Straits Times Index (SGX: ^STI) plunged 2.7% to 84 points, following the S&P 500 and Dow Jones Industrial Average – major market indices for the US – dropping more than 3% each. The stock markets of the world could go on to fall further due to the macroeconomic fears. With so much uncertainty, Chin Hui Leong shows us what we can do to be level-headed and not panic amid the turbulent times.


$STI(^STI.IN) $SingTel(Z74.SI)

Read more

There are more for you ...

View more and participate in our discussion now. It's FREE.

Creating an account means you’re okay with InvestingNote's Terms and Conditions