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An Investing Deep Dive On Sembcorp Industries
Corporate Digest | 08 December 2015
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It is not uncommon to see a big garbage truck come by your house periodically to pick up the waste, leaving behind a bad stench in the air for a couple of minutes. One company which is providing waste removal services in Singapore is Sembcorp Industries.

Well, there is more to Sembcorp Industries then just waste removal. The company actually has three business divisions – Utilities (Energy, water, waste management), Marine (61 percent ownership of Sembcorp Marine and Urban Development – and it also happens to be one of the 30 stocks that make up the Straits Times Index.

Historically, the Utilities and Marine divisions have contributed the lion’s share of Sembcorp Industries’ total profit (for instance, Utilities and Marine made up 50.9 percent and 42.4 percent, respectively, of total profit in 2014), while the Urban Development division is relatively new and only contributes marginally to the company’s profit pie.

However, with the recent fall in oil prices, the Marine division seems to be going through a tough time – it recently announced that it expects to report a loss in the fourth-quarter of 2015.

With some apprehension hanging over one of Sembcorp industries’ main businesses, let’s use four financial metrics to understand how the company is doing and whether any value may be found in its shares.

Sembcorp Industries closed at a price of $3.10 on 4 December. By annualising the company’s earnings per share of $0.26 for the first nine months of 2015, we would get an estimated full year earnings per share of $0.346. This would imply that Sembcorp Industries has a forward price to earnings (P/E) ratio of just 9.

This is not an apples-to-apples comparison, but Sembcorp Industries’ forward P/E is lower than the trailing P/E ratio of 11.7 times for the SPDR STI ETF, an exchange-traded fund which tracks the Straits Times Index.

As at end-September 2015, Sembcorp Industries had a Net Asset Value (NAV) of $3.64. This would mean the company is also trading below its NAV at current prices.

The company’s net debt to equity ratio stands at 0.55 at the moment. This is on the high side. However, if you look at the breakdown of the borrowings, it can be seen that a lot of it is due to project financing.

Sembcorp Industries has in the past few years taken on project financing to fund its infrastructure development for the Utilities division. These projects are expected to be completed over the next few years (2016-2018) and should positively contribute to the company’s profits when done.

Sembcorp Industries’ dividend yield based on 2014’s payout of $0.16 per share is 5.2 percent. The company paid out a similar half-year dividend in 2015 as it did in 2014. The company has been conservative, with its payout ratio in 2014 standing at approximately 36 percent of earnings in that year. This should provide investors with some relief as the company should be able to maintain its dividend payout.

Looking at the four value metrics above, it does seem like Sembcorp Industries deserves a deeper look by value investors.

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Sembcorp Industries  2.080 -0.02 -0.95%   
Business: Primarily engaged in the production and supply of utilities services. [FY18 Turnover] Utilities (55.9%), marine (41.8%), others/corp (2.2%), urban development (0.1%).

Insight: May-19, 1Q19 revenue fell 10.1% to $2.5b due to lo... Read More
Sembcorp Marine  1.200 -- --   
Business: Co is a leading global marine & offshore engineering group. [FY18 Turnover] rigs & floaters, repairs & upgrades, offshore platforms (98.8%), ship chartering (1%), others activities (0.2%).

Insight: May-19, 1Q19 revenue fell 31.3% to $810.6m due to ... Read More


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