By Yang Huiwen

POOR share price performance and a lack of liquidity have prompted a handful of China firms here, or S-chips, to delist from the Singapore Exchange (SGX).

So far this year, Sihuan Pharmaceutical, Man Wah Holdings and ChungHong Holdings, among others, have taken steps to exit the local bourse.

One of the woes that S-chips here face is that they are trading at lower values than their counterparts in Hong Kong and mainland China.

Some are trading at depressingly low price-to-earnings (PE) - a key measure of a share price. Some share prices are just two or three times profits per share.

In Hong Kong, similar companies command PE ratios in the teens. The lower the PE ratio, the cheaper the stocks are relative to their earnings.

Stocks listed in Hong Kong and Shanghai bourses typically command higher premiums given the larger retail investor base there and the local investing culture.

Measures by Beijing to pump liquidity into China's financial system and aggressive lending by Chinese banks have generated a lot of hot money, which then flows into stocks, driving up valuations.

The PE gap between Singapore and the Hong Kong and mainland China markets was made even more acute with the credit crisis and the drying up of liquidity.

The recent emergence of corporate debacles at a handful of China firms here further compounded the problem as investors shunned S-chips, dragging PE ratios to rock-bottom levels.

Industry experts say more S-chips may seek a delisting in the months ahead, with some looking to relist elsewhere. Concerns are growing that this might create a groundswell, with more S-chips to start reviewing their listing status in Singapore and look for alternative markets.

Mr Robson Lee, a partner at law firm Shook Lin & Bok, said he has seen 'more delistings in S-chips now than in the last three years'.

'One of the primary reasons is the huge difference, in terms of PE, in what an issuer can command in Shanghai and Hong Kong vis a vis Singapore.'

'The perceived PE differential is a very compelling factor as to why they want to seek a delisting.'

Man Wah, for instance, blamed the gap partly on the 'lack of understanding from local investors'.

The firm's operations are mainly based in Hong Kong and mainland China, including retail operations. The lack of a presence in Singapore resulted in 'local investors not having sufficient understanding of its products and business'.

In order to delist, the offer party must buy up shares, usually at a premium to the current trading price.

These exit offers rarely face resistance from minority shareholders as they can sell out at attractive premiums over the market price and, sometimes, initial public offering price. This sort of opportunity may not come by again for shareholders due to the low trading liquidity.

In 2007, Want Want Holdings, a food and beverage group which makes the popular rice crackers, delisted from the SGX and relisted in Hong Kong in search of better valuations. It is now trading with a PE of about 26.7 times there, compared with 10 to 15 times in Singapore.

In its exit offer then, the firm said that the valuation of an F&B company with operations in China may be higher 'if it is listed on an exchange where the shares of a number of comparable companies are traded, such as Hong Kong or China'.

'It is likely we will see more S-chip delistings going forward,' said Sabio Global director Alan Lok.

'These companies are lured to Singapore because of the strong corporate governance and transparent laws, but they soon find out they can't command the kind of valuations that their peers in Hong Kong or China can.

'Some (S-chips) here have a PE of two to three times, whereas similar stocks in Hong Kong could command a PE ratio of 12 to 13 times. To a company, it makes no sense to remain listed here, when it has better options elsewhere.'

There are hopes that the current stock market resurgence could rekindle investor interest in S-chips and bring valuations to more pleasing levels.

'With blue-chip valuations now appearing stretched, investors are likely to turn their attention to S-chips in search of better risk-reward prospects,' said CIMB-GK analyst Ho Choon Seng in a report. 'A resumption of dividend payments and a faster-than-expected global recovery leading to a revival of Chinese exports may lift valuations higher.'

This article was first published in The Straits Times.