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Is Sembcorp Marine Ltd Cheap Now After Plunging 33%?

Lawrence Nga
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Sembcorp Marine Ltd (SGX: S51) provides offshore and marine engineering solutions worldwide. It is a 61%-owned subsidiary of Sembcorp Industries Limited (SGX: U96).

At its current price of S$1.43 (at the time of writing), Sembcorp Marine’s shares are trading at 33% below its 52-week high price of S$2.15. This raises a question: Is Sembcorp Marine cheap now? This question is important because if the firm’s shares are cheap, it might be a good time for investors to study its business.

Unfortunately, there is no easy answer. However, we can still get some insight by comparing Sembcorp Marine’s 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 Marine currently has a PB ratio of 1.3, which is higher than that of the SPDR STI ETF’s PB ratio of 1.0. It has a negative PE due to its net loss position of S$74 million in FY2018.  Comparatively, the SPDR STI ETF’s PE ratio is 12.0. Also, the company did not pay any dividend in its latest financial year, mainly due to its loss-making position. Comparatively, the market’s average dividend yield is 3.4%.

Foolish takeaway

Overall, we can argue that Sembcorp Marine is not a deep value stock despite losing a significant part of its market capitalisation lately. Moreover, it’s in a loss-making position, thus rendering the stock unsuitable for the consideration of conservative investors (include dividend investors).

Lastly, for those who are looking into it as a contrarian play, do pay attention to the company’s gearing which has risen significantly over the past few years.

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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