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Is Keppel Corporation Limited A Bargain Now?

David Kuo

Keppel Corporation Limited (SGX: BN4) is a Singapore-listed industrial conglomerate. Its interests lie in four main areas, namely, property, offshore and marine, infrastructure and investments.

Between 1 Jan and 31 Dec 2018, Keppel’s share price dropped by 16.4% compared to a fall of 6.5% for the STI Index (SGX: ^STI). So, is it a bargain?

Four separate metrics, namely, the price-to-earnings (P/E) ratio, the price-to-book (P/B) ratio, the dividend yield and the net debt-to-equity ratio could provide some clues.

Keppel has a trailing twelve months (TTM) earnings per share of S$0.18. But if one-off costs are excluded, then the TTM earnings would be S$0.52. With the conglomerate’s current share price standing at S$6.25, this implies a P/E ratio of 34.7. If the one-time losses are excluded, the P/E would be 12.1.

Apart from looking at the P/E ratio, we could also compare Keppel’s earnings per share (EPS) over time. This could provide a better idea as to how it has been doing. In the last four years (2014-2017) Keppel’s EPS has ranged from S$0.12 (S$0.43, excluding one-time losses) to S$1.04.

At the end of the third quarter of 2018, Keppel reported a Net Asset Value of S$6.30. At the current share price, this results in a P/B ratio of 0.99. What this means is that investors are currently paying S$0.99 for every dollar of assets. Whilst that is not much of a bargain, it could also mean that Keppel is not overpriced.

Additionally, Keppel has seen an increasing trend in its NAV over the past four years moving from S$5.73 to S$6.29. There was a further improvement to S$6.30 after the first nine months of 2018.

At the end of September 2018, Keppel had net debt of S$4.8 billion and equity of S$11.4 billion, indicating a net debt-to-equity ratio of 41%. This is in line with its four-year range from 11% to 56%.

Lastly, the company’s dividend has taken a beating over the last four years decreasing from S$0.48 in 2014 to S$0.22 in 2017. Assuming the company pays out a dividend at the same rate as 2017, this would lead to a yield of 3.5% at current prices.

Looking at the four metrics, it seems likely that Keppel warrants further evaluation, as three of the ratios appear to indicate that it might be a bargain at current prices.

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The Motley Fool Singapore writer Esjay contributed towards this article. Esjay does not own shares in Keppel Corp.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn't own shares in any companies mentioned.