With more than half of Singapore equities trading below their net worth, some investors are chasing profits by buying shares in firms that may be bought out or delisted by controlling shareholders or takeover firms.
"Investors are looking for takeover candidates because prices have come off significantly," said Mr Justin Tang, a director of global special situations at Religare Capital Markets.
"We may see an increase in delistings and takeovers this year because of this."
Warehouse operator Global Logistic Properties (GLP) is among companies targeted for takeover by firms including Blackstone Group, Warburg Pincus and Hopu Investment Management, according to people with knowledge of the matter. GLP shares have risen 55 per cent since the start of last November amid reports that it may be acquired.
Property and oil and gas-related firms offer value for potential buyout or takeover premiums, said Mr Christopher Wong, a Singapore-based fund manager at Aberdeen Asset Management Asia. "If stocks continue to be in the doldrums, then the probability of them being privatised is higher," he said.
Aberdeen funds hold shares in Wheelock Properties Singapore, which trades at 0.69 of its book value and has founding investors controlling about 76 per cent of the shares.
Wheelock, Mermaid Maritime and Dyna-Mac Holdings are among potential buyout candidates trading below book value, said Ms Carmen Lee, head of research at OCBC Bank, adding that "inexpensive" valuations mean companies or individuals with cash are likely to consider taking over or delisting some undervalued stocks this year.
LOOKING FOR UPSIDE
Investors are looking for takeover candidates because prices have come off significantly. We may see an increase in delistings and takeovers this year because of this.
MR JUSTIN TANG, a director of global special situations at Religare Capital Markets.
All three companies are controlled by no more than three shareholders, are profitable at the earnings before interest, tax and depreciation and amortisation level, and have a debt-to-equity ratio of less than 50 per cent, according to Bloomberg data.
Wheelock gained 2.6 per cent yesterday on volumes that are more than three times its three-month average, Mermaid Maritime rose 3 per cent and Dyna-Mac by 1.7 per cent.
Auric Pacific Group, which yesterday got a cash offer of $1.65 per share for a 23.3 per cent stake from a firm owned by Mr Stephen Riady and CEO Andy Adhiwana, jumped 13.4 per cent. Mr Riady is chairman of developer OUE and executive director of Auric Pacific. Rival QAF rose as much as 4.6 per cent after the Auric Pacific announcement.
But not all investors will take the risk of investing in potential buyout targets. "It's very difficult to pre-empt when the delisting may happen or if it will happen at all unless there's information leaks, and that's very risky," said president of the Securities Investors Association of Singapore David Gerald.
Investors who held stakes in 20 companies, including SMRT, Osim and HTL, which were bought out last year, got a one-year median return of 23 per cent on their bets before trading was halted, more than that of the Straits Times Index (STI).
The benchmark STI is the second cheapest among major peers in Asia after South Korea, based on its price-to-book value of 1.19, after ending last year little changed and falling 14 per cent the year earlier.
"You've got to be patient and buy cheap and hopefully some of these companies will be privatised," said Mr Wong.