Bad IR causing undervalued stocks: experts
Bad IR causing undervalued stocks: experts
Stock data has revealed that 40 per cent of shares listed on the local bourses are traded below book value, with local securities experts suggesting that bad investor relations (IR) was the leading cause.
As one of the top ten basa fish exporters in the country, Nam Viet Corporation JSC (ANV) with chartered capital of VND660 billion (US$29.5 million) and equity of VND1.3 trillion, reported revenues of VND1.12 trillion and a profit after tax of more than VND20.5 billion.
Despite the promising and positive business results, since June 2015, ANV shares have fallen from VND10,400 to VND7,000. The prices are much lower than the book value of VND19,705 each.
Similarly, shares of the local paper manufacturer Hapaco JSC (HAP) which has equity of VND692.6 billion as of March 31, 2016, and a corresponding book value of VND13,527 per stock, only traded at around VND5,500, or less than half the book value. Over 2015, the HAP share price as fallen by 27 per cent.
In contrast to the low prices on the stock market, HAP posted a net revenue of VND374.9 billion and an after tax profit of VND35.4 billion, an increase of as much as 7.1 and 25.5 per cent, respectively over 2014.
Another example was the case of Bac Lieu Fisheries JSC (BLF) that also has a very low market value compared to its book value. BLF shares traded below VND4,300 while the book value of one share was VND17,080.
In the market, many stocks have fallen very far below their book values despite their business results being quite good. They include the mineral manufacturers Taicera Enterprise Company (TCR) and Chang Yih Ceramic JSC (CYC), construction firm Hacisco JSC (HAS), two cement firms under the national chemical groups of Gypsum and Cement JSC (TXM) and Hoang Mai Cement JSC (HOM), two miners of Spilit Stone Joint Stock Company (SPI) and Vinacomin-DeoNai Coal JSC (TDN), and food manufacturer Nam Định Export Foodstuff & Agricultural Products Processing JSC (NDF).
Bad IR responsible
Though there were many reasons for undervalued shares such as earning results, bad business outlooks and downward market trends, most securities experts claim bad investor relations was to blame.
Nguyen Xuan Binh, deputy director of the analysis section in Bao Viet Securities Company (BVSC), said the undervalued shares could be the result of a bad outlook from the industry, however the P/B (market price to book value) ratio still remained stable between 1.6 to 1.7. Binh said that obviously business losses and bad IR activities would contribute to the low price of shares. However, he said in the case of good business results still producing undervalued share prices, it was probably due to a lack of transparency about information on the firms' investments and concerns about cash flow stability.
Bui Nguyen Khoa, head of market analysis at BSC Securities Company, cited the example of Hoa Phat Group, saying that after the group improved its IR activities for which it had been criticised a lot, HPG shares began trading at their real value.
According to other opinions, the underpricing of shares from firms with good business results and high profitability potential in the future reflected a lack of trust from investors in both the firms and the local stock markets.
In this case, not only the firms themselves, but the entire market system must work hard to regain the investors' trust.
Earlier, leaders of listed firms such as securities firm FIT, construction firm NBB and Refrigeration Electrical Engineering Corporation (REE) admitted that their IR activities had not been effective enough in attracting local and foreign investors, and especially in correcting rumours in the market. Now, shares in those firms were much higher in the local market.
On April 27, in meeting with Deputy Prime Minister Vuong Dinh Hue, the State Securities Commission (SSC) said one of the key goals was to make listed firms apply transparent management in their works, adding that it would mark transparent management as one of the major conditions required when it restructured and classified listed firms in the future.
