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CIMB: Increase S-Shares Exposure To Catch China Tide
Aspire, Investments | 22 April 2015
By: Vance Wong
Articles (74) Profile

After the A-shares bull run that started last year, the H-shares are catching up with the influx of southbound money. Similarly, the B-share market is also gaining momentum from the good performance of US-listed Chinese stocks.

However, CIMB highlights that Singapore-listed Chinese stocks (S-shares) are not performing as well as the other counterparts, most probably “due to the lack of attention.”

According to the chart above, it can clearly be seen that the S-shares are lagging behind with only a 13.3 percent gain. CIMB thinks that investors hunting for laggard shares should be interested in S-shares.

Chinese Equities Re-Rating To Benefit S-shares

CIMB thinks that the “re-rating tide of Chinese equities” will spill from the A-share market to offshore-listed companies. Only the H- and B-share markets have seen significant gains, which reinforces CIMB’s belief that S-shares will receive more attention from investors when the latter searches for laggards.

Furthermore, CIMB feels that the Chinese government might consider a China-Singapore Stock Connect, considering that later this year a Shenzhen-Hong Kong Stock Connect will be launched.

Analysts from Macquarie Equities Research (MER) have the same sentiments too, because of the strong economic ties that Singapore and China have for a long time. Some of these examples include the Sino-Singapore Tianjin Eco-city and China-Singapore Suzhou Industrial Park.

If the connect materialises, CIMB expects it to be a “notable catalyst for S-shares.” This could be because it believes that the China investors will be interested in the discounted S-shares of familiar Chinese names of listed companies as compared to the A-share market.

CIMB Analysts: Buy More S-shares To Catch Tide

CIMB highlights that the H-share market might be too saturated right now so investors can look into buying more S-shares or increasing their stakes. Below are some of the top picks by CIMB.

Yangzijiang Shipbuilding Corporation Limited

Source: FactSet Fundamentals

Top on CIMB’s list of S-shares, Yangzijiang Shipbuilding sits on a market cap of US$3.88 billion and a Price-To-Book-Value (P/BV) ratio of 1.1.

Although its Price-Earnings (P/E) ratio was 6.2 in 2014, Yangzijiang has been able to maintain strong financials even when its industry is facing difficulties; Bloomberg has estimated its P/E to be 8.0 this year.

For the past five years, it has been able to attain more than 20 percent net profit margins and Return on Equity (RoE) of more than 15 percent. This is no wonder CIMB is optimistic about the company’s potential in the S-share market.

SIIC Environment Holdings Limited

Source: FactSet Fundamentals

From the chart above, some analysts were pessimistic about SIIC Environment but the share price shot up since early this month. One possible reason could be probably its recent acquisition of a major stake (92 percent) in China’s Fudan Water Engineering and Technology.

Furthermore, its Earnings Per Share (EPS) growth has been estimated to be 38 percent for this year, a huge increase from last year’s seven percent growth, making it among the favourites of CIMB’s analyst team.

With a Communications background, Vance has the passion to write with a purpose - to provide content supported with substantial evidence to vested readers.

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