BT News, Mar 5, 2014 Take Swee Hong rally with caution By Kenneth Lim INVESTORS should treat construction company Swee Hongs recent share surge with a healthy dose of scepticism. Although the spike has taken the stock to where it was about four months ago, the lack of a visible fundamental catalyst to underpin the recovery raises questions about the quality of the price jump. Investors might be better served looking at less risky alternatives within the sector. Swee Hong shares made their listing debut on the Singapore Exchange (SGX) mainboard in May 2012 and had traded between 25 and 32 cents for most of that time. But the Oct 4 collapse last year of a handful of SGX stocks - Asiasons Capital, Blumont Group, LionGold Corp, Innopac Holdings, ISR Capital and ISDN Holdings - triggered a massive selloff among smaller counters that hit Swee Hong as well. Between Oct 4 and Oct 30, Swee Hong stock tumbled from 29 cents to 12.8 cents, losing more than half its value. The shares hovered between 11 and 12 cents for the bulk of the next four months. On Monday last week, Swee Hong stock suddenly shot up 36 per cent, from 12.9 cents to 17.6 cents, drawing a trading query from SGX. Swee Hong gave a boilerplate reply saying that it did not know of any undisclosed information that might explain the trading. But the rally continued, pushing the stock to 25 cents by Thursday. The stocks 94.2 per cent gain in February was the largest among Singapore-listed stocks. Swee Hong shares closed at 26 cents yesterday. What could explain the rally? The easy argument that Swee Hong is simply returning to its pre-Oct 4 pricing level is not entirely convincing. To begin with, there is no apparent catalyst for the February rally in the stock. Since Oct 4, Swee Hong has not announced any new contracts, save for the setting up of a joint venture with six other parties to tender for and undertake MRT projects. That partnership, in which Swee Hong has a one-fifth stake, has yet to bear tangible fruit. In the meantime, Swee Hong has also posted two quarters of losses. As at its fiscal half-time ended Dec 31, 2013, six-month net loss was $9.7 million, wider than its year-ago loss of $680,000. Swee Hong did have an order book of about $168.1 million as at Feb 14 this year, but the bulk of it is not expected to contribute significantly to revenue until fiscal 2015. And none of it was announced between October and February. Even if Swee Hongs share price was merely reverting to normal valuations, it is not clear that those valuations are particularly attractive. In terms of earnings multiples, loss-making and non-dividend paying Swee Hong is clearly more richly valued than its rivals. Key competitors Hock Lian Seng Holdings, Koh Brothers Group, Lum Chang Holdings and OKP Holdings are all profitable and all pay dividends. As a multiple of its current order book, Swee Hongs share price is also more expensive compared to those rivals for whom order books have been disclosed. Incidentally, Swee Hongs top shareholders include Ipco International chief executive Quah Su-Ling, LionGold Corp director of business and corporate development Peter Chen Hing Woon, and LionGold independent director Ng Su Ling, who was also formerly a director at Blumont. Ms Quah, Mr Chen and Ms Ng are all embroiled in lawsuits surrounding the collapse of the stocks at the centre of the Oct 4 debacle as a result of their allegedly having pledged shares in those affected counters as collateral for certain accounts. Given the apparent lack of a fundamental catalyst, market players should tread with care on this stock.
Posted on: Wed, 05 Mar 2014 04:37:30 +0000
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