Acleda Shares Hold Court on CSX Index Despite Low Valuations

The performance of Cambodia Securities Exchange index is oftentimes impacted by share price movements of its largest counter but most of its stocks have recorded dips year-to-date
Cambodia Securities Exchange (CSX) in Phnom Penh, November 28, 2022. Kiripost/Siv Channa
Cambodia Securities Exchange (CSX) in Phnom Penh, November 28, 2022. Kiripost/Siv Channa

Darling of the Cambodia Securities Exchange (CSX), ACLEDA Bank Plc has undergone huge revisions in stock price, losing 34 percent since its record-breaking initial public offering (IPO) in May 2020 to settle in the range of 10,500 riel at present.

Its price movement has unified traders on social media, who constantly wager the probability of it hitting 11,000 riel, buoyed by a persistent strong sell mode.

With public shareholders holding about five percent equity, CSX’s only commercial bank stock ACLEDA, trading under the ticker symbol ‘ABC’ on the Mainboard, is owned by a few substantial shareholders.

They include ACLEDA Financial Trust with 25.7 percent stake, its employees via ASA Plc (20.7 percent) and Japan’s Sumitomo Mitsui Banking Corp (18.07 percent).

Its third quarter earnings ended September 30, which saw net profit rise 27 percent year-on-year to $49 million, has put it in good stead among investors in the early stage stock exchange, which hosts seven counters to date.

However, ACLEDA has been selling at a large discount with below par valuations. Its price-to-earnings (PE) ratio was 6.22 times to its share price while price-to-book (P/BV) ratio was below one at the end of trading day on November 28.

ACLEDA Bank on Monivong Boulevard, Phnom Penh, November 15, 2022. Kiripost/Siv Channa
ACLEDA Bank on Monivong Boulevard, Phnom Penh, November 15, 2022. Kiripost/Siv Channa

“It is due to the continued surplus of sell side made by ACLEDA’s employees whose shares have just been allowed to float in the market [starting February] after being locked for years,” said CSX market operations director Kim Sophanita.

Explaining the present circumstances, ACLEDA executive vice president and group chief financial officer Mar Amara said the IPO price of 16,200 riel set by investors during its listing carried through until June 15, 2021. (The IPO proceeds totalled $17.5 million.)

Around four percent of shares legalised from ASA released then resulted in an increase in supply over demand in the stock market, bringing down the share price significantly.

On April 5 this year, ASA floated additional shares (about 15 percent). As of September 30 2022, about 18 percent of employee shares were floated on CSX.

According to expert assessments and in line with ACLEDA’s sustainable banking growth, Amara said the share price stood around three times the book value.

The current market share price is a “great opportunity” for medium- and long-term investors to get good value stocks from investors who have urgent cash needs, she said.

According to Kyung Tay Han, managing director of Yuanta Securities (Cambodia) Plc, the underwriter for ACLEDA’s IPO, the bank’s current stock price in both the PB/V and PE multiples is “clearly undervalued” in his personal opinion.

This, he said, is based on the bank’s sustainable long-term earning power and its “well-diversified” asset portfolio and risks.

Short-term movements of stock prices, which could take a while, are influenced by various factors such as market liquidity – the unbalanced supply and demand for ACLEDA shares, global economy and investor sentiments.

“However, the long history of the stock market tells us that the stock price and the company’s actual earnings tend to strongly converge over time,” Han told Kiripost.

Noting that PE multiple is one of the most widely used tools in stock valuation, he said it is convenient to use it to compare a company’s stock price with others.

“It simply shows the relationship between the market price of a company and that company’s earnings,” he added.

‘Unreasonable price swings’

Panning over the stock exchange, stock valuations have tamed from a month ago following the end of the reporting period for the companies’ respective financial quarters.

Save for Sihanoukville Autonomous Port (PAS) and Phnom Penh Autonomous Port (PPAP), which have delayed the release of their third quarterly report to December 2022, active trading stoked share prices, ruffling up stock valuations.

Cambodia Securities Exchange (CSX) billboard in Phnom Penh, November 28, 2022. Kiripost/Siv Channa
Cambodia Securities Exchange (CSX) billboard in Phnom Penh, November 28, 2022. Kiripost/Siv Channa

Year-to-date, five out of seven CSX Mainboard counters registered dips in share prices, with Taiwanese garment factory Grand Twins International Plc (GTI) falling the most at nine percent, as of November 24, according to Yuanta Securities.

In the third quarter ended September 30, 2022, the index slipped 4.7 percent to 467.02 points from 490.11 points a year ago.

Total trading volume for the Mainboard and Growth Board fell 11.9 percent year-on-year (YoY) to 6.5 million shares whereas total trading value dropped 4.6 percent to 63.8 billion riel ($15.4 million) in the period. As a result, market capitalisation shrank by 3.4 percent YoY to 7.2 trillion riel ($1.7 billion).

“The third quarter results with the whole market showing a few percent drop year-on-year is not significant,” Sophanita of CSX asserted.

However, she noted that there was a “big difference” between the third and second quarter of this year due to ABC’s largest-ever single deal worth $43 million through CSX’s negotiation trading method.

“If we consider the [cumulative] nine-month market performance in 2022, it has shown a significant increase compared with the same period in 2021,” Sophanita said.

Sharing his views, David Singh, a Kuala Lumpur-based corporate finance professional, said CSX is still in its infancy stage and liquidity is an issue, which could result in “unreasonable price swings” that do not reflect the corporate fundamentals.

“It also reflects that the CSX is an inefficient market at the moment that requires both market players and regulators to play an active role hand in hand to improve it,” he said.

Speculating or investing?

Despite being a decade old, CSX is relatively small with ACLEDA being its largest counter, which closed unchanged at 10,500 riel with 66,217 shares traded for a market capitalization of around $1 billion on November 28.

Along with ACLEDA, CSX’s Mainboard counters consist of three state-owned entities – PAS, PPAP and Phnom Penh Water Supply Authority (PWSA), industrial land developer Phnom Penh SEZ Plc, Taiwanese garment factory GTI and Malaysian-owned power grid builder Pestech (Cambodia) Plc.

Its Growth Board, established for companies with a shareholder equity of $500,000 or below, features JS Land Plc and DBD Engineering Plc.

Given the overall size of Cambodia’s stock exchange, one might argue that there is a lack of benchmarking standard to value stocks with similar industries. However, David explained that “valuation is not an exact science”.

He noted that there are regional comparable corporations which can be used to benchmark values of Cambodian corporations, although risk factors may differ in different markets that can result in premiums or discounts in comparison.

Meanwhile, Yuanta Securities’ Han opined that the valuation approach to stocks should not be different from that of other financial products such as a bank’s term deposits or corporate bonds.

The future cash flow, for example, interest incomes and principal amounts for term deposits and bonds, and dividends incomes and capital gains for stocks, will eventually determine the value of all investment products.

Therefore, Han advised, when it comes to investing in stocks, investors should first come up with the estimated future cash flow from their investment for the particular stocks, even though the estimates might not be as precise as those for fixed income products.

Following that, investors should review conservatively if their estimates meet their expectations.

“However, if [the investor] can’t come up with reliable estimates for the future cash flow for a particular stock or the company, they should not invest in the stocks or they need to understand [whether] they are speculating rather than investing,” he added.