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Saturday 20 March 2010
Most S-chips being frozen out by analysts
Analysts are giving most Chinese firms listed in Singapore the cold shoulder amid a series of scandals and mediocre profit results that have brought the once-high fliers down to earth.
Chinese firms weighed down by scandals and disappointing returns
By Jonathan Kwok 19 March 2010
Analysts are giving most Chinese firms listed in Singapore the cold shoulder amid a series of scandals and mediocre profit results that have brought the once-high fliers down to earth.
S-chips - as the shares are known - were once keenly embraced by brokers, while shareholders rushed headlong into a slew of initial public offerings (IPOs) in the boom year of 2007.
High-profile corporate scandals and poor returns, however, have been deadening investor interest and reducing analyst coverage since early last year.
S-chips going private have also affected the sector, as has the dropping of firms like Yangzijiang Shipbuilding from the benchmark Straits Times Index (STI).
One analyst house in Singapore, which covers around 40 to 50 stocks in all, now follows only one S-chip, down from five in 2007.
However, not the entire spectrum of S-chips has suffered from the loss in enthusiasm, say analysts.
‘The drop in coverage is not a blanket thing, and coverage is based on the fundamentals of the respective counter. Some have a good earnings growth story still,’ DBS Vickers analyst Patrick Xu told The Straits Times.
‘(However), on the whole, there has been decreasing coverage for the less interesting counters. Some are reporting a downtrend in earnings... So, naturally we are decreasing coverage.’
Investor interest started taking a hit in late 2008 and early last year due to high-profile accounting scandals and debt problems.
Dwindling interest prompted some S-chips to go private, which only added to the indifference among investors.
A Deutsche Bank report found that six S-chips, including Man Wah and Chunghong, had been taken private since two years back.
The fact that some S-chips have dropped out of the STI - where investor and analyst attention is often focused - has also hurt their cause.
The re-launched STI in January 2008 had three China-based firms - Cosco Corp, Yangzijiang and Yanlord Land. Yangzijiang and Yanlord have since been dropped, while it was announced last week that Cosco will be replaced by CapitaMalls Asia, removing all S-chip representation from the STI.
The S-chip troubles started in October 2008, when now-delisted steelmaker FerroChina defaulted on loans just weeks after announcing upbeat quarterly results.
A string of companies has since been flagged for alleged accounting irregularities, including FibreChem Technologies, Oriental Century, Zhonghui Holdings and China Sun Bio-Chem.
OCBC Research analyst Carey Wong said the scandals were big tilting points: ‘The market gradually lost confidence and interest in S-chips.’
What scares investors and analysts all the more is the fact that some of these troubled firms were the darlings of the market during the 2007 boom.
Sino-Environment was one such market darling - popular with investors and covered by at least seven analyst houses in 2007. Its record high price of $3.92 in October 2007 represented a more than tenfold increase from its April 2006 IPO price of 33 cents.
However, the firm was flagged for accounting irregularities last year and was also in default of $149 million in convertible bonds. The stock was suspended in September last year.
But all is not lost for S-chips.
Mr. Roger Tan, vice-president of the research department at the Securities Investors Association of Singapore, has been covering more S-chips since last October.
New companies on board include China Environment, Ying Li and Centra-Land.
‘As an independent body, we can and should pick up these companies that are not covered and that have been dropped,’ said Mr. Tan.
‘We are in this place to look for gems, and the best gems are in places where people don’t want to look.’
1 comment:
Most S-chips being frozen out by analysts
Chinese firms weighed down by scandals and disappointing returns
By Jonathan Kwok
19 March 2010
Analysts are giving most Chinese firms listed in Singapore the cold shoulder amid a series of scandals and mediocre profit results that have brought the once-high fliers down to earth.
S-chips - as the shares are known - were once keenly embraced by brokers, while shareholders rushed headlong into a slew of initial public offerings (IPOs) in the boom year of 2007.
High-profile corporate scandals and poor returns, however, have been deadening investor interest and reducing analyst coverage since early last year.
S-chips going private have also affected the sector, as has the dropping of firms like Yangzijiang Shipbuilding from the benchmark Straits Times Index (STI).
One analyst house in Singapore, which covers around 40 to 50 stocks in all, now follows only one S-chip, down from five in 2007.
However, not the entire spectrum of S-chips has suffered from the loss in enthusiasm, say analysts.
‘The drop in coverage is not a blanket thing, and coverage is based on the fundamentals of the respective counter. Some have a good earnings growth story still,’ DBS Vickers analyst Patrick Xu told The Straits Times.
‘(However), on the whole, there has been decreasing coverage for the less interesting counters. Some are reporting a downtrend in earnings... So, naturally we are decreasing coverage.’
Investor interest started taking a hit in late 2008 and early last year due to high-profile accounting scandals and debt problems.
Dwindling interest prompted some S-chips to go private, which only added to the indifference among investors.
A Deutsche Bank report found that six S-chips, including Man Wah and Chunghong, had been taken private since two years back.
The fact that some S-chips have dropped out of the STI - where investor and analyst attention is often focused - has also hurt their cause.
The re-launched STI in January 2008 had three China-based firms - Cosco Corp, Yangzijiang and Yanlord Land. Yangzijiang and Yanlord have since been dropped, while it was announced last week that Cosco will be replaced by CapitaMalls Asia, removing all S-chip representation from the STI.
The S-chip troubles started in October 2008, when now-delisted steelmaker FerroChina defaulted on loans just weeks after announcing upbeat quarterly results.
A string of companies has since been flagged for alleged accounting irregularities, including FibreChem Technologies, Oriental Century, Zhonghui Holdings and China Sun Bio-Chem.
OCBC Research analyst Carey Wong said the scandals were big tilting points: ‘The market gradually lost confidence and interest in S-chips.’
What scares investors and analysts all the more is the fact that some of these troubled firms were the darlings of the market during the 2007 boom.
Sino-Environment was one such market darling - popular with investors and covered by at least seven analyst houses in 2007. Its record high price of $3.92 in October 2007 represented a more than tenfold increase from its April 2006 IPO price of 33 cents.
However, the firm was flagged for accounting irregularities last year and was also in default of $149 million in convertible bonds. The stock was suspended in September last year.
But all is not lost for S-chips.
Mr. Roger Tan, vice-president of the research department at the Securities Investors Association of Singapore, has been covering more S-chips since last October.
New companies on board include China Environment, Ying Li and Centra-Land.
‘As an independent body, we can and should pick up these companies that are not covered and that have been dropped,’ said Mr. Tan.
‘We are in this place to look for gems, and the best gems are in places where people don’t want to look.’
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