A share buyback occurs when a company purchases its stock from the market using cash on hand. More often than not, the company will buy back its stock when management believes it is undervalued in the open market. Buying back these shares would not only help drive up share prices but these shares in the company treasury might be distributed to employees as compensation in the future.
Following this thought process, you may be wondering which companies have lately conducted share buybacks, which could possibly be an indication that the company is undervalued.
In 3Q 2022, 46 SGX-listed companies bought back shares for a total consideration of $586 million, bringing the total buyback consideration for the first nine months of 2022 to S$1.54 billion, up 150% from the same period in 2021.
These results are well aligned with current market conditions, where managements have more opportunities to buy back their shares during the downturn.
The table below lists some notable companies that completed share buybacks in 3Q22. (Refer to SGX for all 49 companies)
Nine of the ten stocks that led the 3Q22 buyback consideration tally also led the first nine months of 2022 buyback consideration tally. These stocks were Keppel Corporation, Wilmar International, Oversea-Chinese Banking Corporation, CapitaLand Investment, Yangzijiang Financial Holding, The Hour Glass, Singapore Telecommunications, Singapore Technologies Engineering and OUE.
Top Share Buybacks by SGX-listed companies (3Q22)
| Company | Buyback Consideration | Shares Purchased | Average price paid per share | Percentage of Shares bought back on Current Mandate (%) |
|---|---|---|---|---|
| WILMAR INTERNATIONAL | $140,544,901 | 34,575,300 | $4.07 | 1.07 |
| KEPPEL CORPORATION | $136,187,343 | 19,024,500 | $7.16 | 2.7 |
| OVERSEA-CHINESE BANKING CORPORATION | $97,180,549 | 8,000,000 | $12.15 | 0.37 |
| YANGZIJIANG FINANCIAL HOLDING | $73,305,167 | 192,065,600 | $0.38 | 5.22 |
| THE HOUR GLASS | $31,129,043 | 13,953,000 | $2.23 | 2.05 |
| CAPITALAND INVESTMENT | $26,729,210 | 6,903,600 | $3.87 | 0.68 |
| SINGAPORE TELECOMMUNICATIONS | $9,752,800 | 3,662,791 | $2.66 | 0.02 |
| SINGAPORE TECHNOLOGIES ENGINEERING | $7,712,640 | 2,000,000 | $3.86 | 0.13 |
| SEMBCORP INDUSTRIES | $4,216,139 | 1,300,000 | $3.24 | 0.07 |
| SIA ENGINEERING COMPANY | $1,059,025 | 443,900 | $2.39 | 0.04 |
| SPACKMAN ENTERTAINMENT GROUP | $327,356 | 65,266,000 | $0.01 | 3.43 |
Top Straits Time Index Component, in terms of share buyback
In 3Q 2022, 8 of the 30 companies in the STI conducted share buyback. Among them, Keppel Corporation and Wilmar International stand out with 2.7% and 1.07% of their shares purchased, respectively.
Keppel Corporation
Keppel Corporation repurchased 2.7% of its shares in Q3 2022 at an average price of $7.16 per share, for a total consideration of $136 million.
Keppel Corporation was formed in 1968 as a local shipyard and currently focuses on four major areas to provide solutions for sustainable urbanisation: energy and environment, urban development, connectivity, and asset management. Year to date, the stock is up 37% due to the recovery in oil prices and the company’s successful business restructuring.
As a result of its achievements and the ability to unlock considerable cash from its asset monetisation program, the group net gearing ratio has fallen significantly from 0.91x at the end of December 2020 to 0.68x at the end of December 2021. Taking this good financial performance and health into account, Keppel Corp has launched a $500 million share buyback program to purchase back equities it believes are undervalued.
We have written extensively about Keppel Corporation.
- Overview of Keppel Corporation
- Is Keppel Corporation’s restructuring working?
- Keppel Corporation’s expansion into new markets
Overall, this share buyback is a continued indication that Keppel Corporation is doing well and that the management believes its share is still undervalued in this market condition.
Wilmar International
Wilmar International has a history of conducting share buybacks, and it once again led the buyback consideration this quarter. In total, the company paid S$140.5 million for 34.6 million shares at an average price of S$4.065 per share.
Wilmar International is an integrated agribusiness that operates a comprehensive agricultural commodities value chain. Its operations extend from the milling of palm oil and sugarcane, to the manufacturing and sale of a diverse range of food items.
For the six months ended 30 June 2022, the company recorded a record US$1.16 billion net profit, owing to stronger performance across all core business divisions as well as higher contributions from its associates and joint ventures. This represents a more than 50% increase from a year earlier, which explains why its stock price went up the next day.
Nonetheless, this good news was short-lived, as Wilmar’s share price continued to fall.
All of this is attributed to the geopolitical crises, strong inflationary pressures, and government-enacted protective policies, to which Wilmar was supposed to be immune or at least be resilient due to its integrated business model.
However, given the current backdrop of recession and inflation, its downstream business expansion (plantations, mills) may be unable to offset the loss in the upstream business (oil palm plantation) as commodities prices continue to fall. This was confirmed when Wilmar reduced their current expected volumes and margins, indicating that such an effect is already taking place.
Very soon, 3Q 2022 results will be out (around the end of October), and if Wilmar’s earnings show resiliency, there is a prospect of a comeback.
Top Non-STI Stocks, in terms of share buyback
Among Non-STI stocks, the companies with the highest buyback considerations included:
- YZJ Financial Holding (SGX: YF8): $73,305,167
- The Hour Glass (SGX: AGS): $31,129,043
- OUE (SGX: LJ3): $15,785,929
- First Resources (SGX: EB5): $7,742,285
- Hong Fok Corporation (SGX: H30): $5,304,566
Let’s look at the top 2:
YZJ Financial Holding Ltd
As of 30 September, YZJ Financial Holding has repurchased 5.22% of its outstanding shares (excluding treasury shares) at an average price of 38.2 cents per share.
YZJ Financial Holding, a spin-off from Yangzijiang Shipbuilding, is an investment manager with a focus on Asia. The organisation focuses on three core aspects: investment management, fund/wealth management, and debt investment.
This company was spun off from one of the leading shipbuilding businesses in order to gain more freedom in expanding its investment portfolio and capturing more market value.
Unfortunately, due to the present market conditions, the company has not done well since its listing. For the six months ending June, the investment and fund management firm posted earnings of $136.4 million, a 30.6% decrease year on year. This could be why YZJ Financial Holding is now in the red, down from 55 cents when it first began trading in the market earlier this year.
On the bright side, the company has announced a $200 million share buyback program. The mandate sought by shareholders in a June EGM authorises the company to buy back up to 10% of its shares. This has likely provided the firm with the opportunity to buy back its shares at an undervalued price and has undoubtedly offered some support for the share price.
Moving forward, YZJ Financial Holdings’ recovery depends on the success of the Singapore and China markets, both of which are critical to the company’s operations. If both economies, particularly China, bounce back, shareholders could gain from capital appreciation.
Hour Glass Limited
Hour Glass is the second Non-STI stock on the list with the largest buybacks, having purchased 2.05% of its shares between 3 August and 30 September at an average price of $2.23 per share. The prior mandate saw 3.49% of its shares purchased back through 26 July.
Hour Glass is a multi-brand and standalone luxury watch retail group located in Singapore, Kuala Lumpur, Bangkok, Phuket, Ho Chi Minh, Hanoi, Hong Kong, Tokyo, Sydney, Melbourne, and Brisbane. It essentially operates as an authorised store for several luxury watch brands. Aside from that, the group is involved in luxury real estate and has high-end retail and commercial properties around Asia.
Year to date, the watch specialist company has been relatively resilient, increasing by 2.5%. In fact, since the pandemic hit, this industry has witnessed tremendous demand for high-end watches that supply has been unable to meet.
Unfortunately, the share price of Hour Glass has dropped dramatically recently (12%), which is unusual given that the company has made no major announcements. On a broader level, this drop may be linked to the bottom emerging for luxury watches, where watches like Rolex in the used watch market are starting to drop.
As an indication, the Subdial 50 Index, which is comprised of the top 50 most traded models on the pre-owned market and accounts for over 20% of total spending globally, has been on a downward trend since March.
Some have attributed this drop to the collapse in bitcoin prices as well as the current market sentiment. If this is the case, it may be some time before the Hour Glass share price recovers unless the company can prove its resiliency in the upcoming half-year results in November.
Conclusion
Share buybacks are usually a good indicator that the company’s stock is undervalued and could be a nice benchmark for investors.
Nonetheless, three of the four firms presented have cheap share prices due to the current market conditions. As a result, while it may be cheap or undervalued to buy now, any capital gains in the future are contingent on positive news for the company.
On the other hand, Keppel has seen its share price rise significantly this year, which may reduce the company’s risk-to-reward ratio.
I have to emphasize that investors should not invest in a firm solely because of a share repurchase. Instead, more research is needed on the management’s alignment with minority shareholders, the company’s profitability, and its overall health. Nonetheless, it is a good starting point.
