Sembcorp Industries Limited (SGX: U96) is a conglomerate with four major business segments: utilities; industries; urban development; and other businesses. The industries segment is made up of Sembcorp Industries’ 61% ownership stake in the Singapore-listed marine engineering firm, Sembcorp Marine Ltd (SGX: S51).
At the current price of S$2.19 (at the time of writing), Sembcorp Industries’ shares are trading at 30% below thier 52-week high price of S$3.11. This raises a question: Is Sembcorp Industries cheap now? This question is important because if the firm’s shares are cheap, it might be a good time for investors to pick up some stocks.
Unfortunately, there is no easy answer. However, we can still get some insight by comparing Sembcorp Industries’ current valuations with the market’s valuation. The three valuation metrics I will focus on are the price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield.
I will be using the SPDR STI ETF (SGX: ES3) as a proxy for the market; the SPDR STI ETF is an exchange-traded fund that tracks the fundamentals of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).
Sembcorp Industries currently has a PB ratio of 0.6, which is lower than that of the SPDR STI ETF’s PB ratio of 0.9. Yet, its PE ratio of 11.6 times is slightly higher than the SPDR STI ETF’s PE ratio is 10.5. Similarly, the company’s dividend yield is at 1.9% while the market average’s dividend yield is at 3.8%. The lower the dividend yield, the higher the valuation.
Overall, we can argue that Sembcorp Industries is trading at a relatively attractive valuation as compared to the benchmark. Thus, contrarian investors might find the company an attractive candidate for further research. On the other hand, its low dividend yield renders it unattractive for dividend investors.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.
Motley Fool Singapore 2019