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The Straits Times Index’s Flat Performers for the Year

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It’s already the 10th of December, so we only have 21 more days to go before 2013 comes to a close. Starting from last Tuesday, the Straits Times Index (SGX: ^STI) has been on a losing streak, closing at 3,114 points yesterday. That would represent a 1.7% decline since the end of December last year.

We’ve seen some of the Straits Times Index’s best performers, as well as its worst performers. Today, let’s turn our attention onto the shares that have gone nowhere: Singapore Press Holdings (SGX: T39), Keppel Corporation (SGX: BN4), and SembCorp Industries (SGX: U96).

Company 31 Dec 2012 9 Dec 2013 % Change
Singapore Press Holdings S$4.03 S$4.04 0.25%
Keppel Corporation S$11.0 S$11.03 0.27%
SembCorp Industries S$5.25 S$5.27 0.38%
Straits Times Index 3,167 3,114 1.7%

Source: S&P Capital I Q

1. Singapore Press Holdings

The newspaper publisher and property owner has seen rather poor numbers for its financial year ended 31 Aug 2013.

Revenue slipped 3.9% from the previous year to S$991m while profits were slashed 25% to S$431m on the back of declining newspaper advertising revenue, the most important source of revenue for the company.

That said, SPH was also busy trying to unlock value for its shareholders by spinning off its properties – Paragon and Clementi Mall – into the real estate investment trust, SPH REIT (SGX: SK6U).

SPH retained a 70% ownership stake in the REIT, which started trading on the Mainboard exchange on 24 July this year. SPH REIT’s unit-price is currently up 10% to S$0.99 from its offering price of S$0.90, so that’s been a bright spot for SPH.

Going forward, SPH has been looking at cost-cutting initiatives which management estimates can save the company up to S$19m a year. Alan Chan, SPH’s chief executive, also commented during the newspaper publisher’s full-year earnings release that the company is aware of “a challenging environment of media consumption behaviour” (reflected in the company’s declining readership trends and newspaper ad revenue) and that a strategy consultant had been brought in to “reinvigorate [SPH’s] core media business.”

The company hasn’t been able to showcase any form of meaningful growth in its profits going back to 31 August 2006, so this attempted-reinvigoration of its core businesses is important for its future.

2. Keppel Corporation

Keppel Corp is one of the largest companies in Singapore with a market value of close to S$20b. It has its fingers in many pies, as it has to contend with marine, property, and infrastructure businesses.

Under the marine business, it helps design, construct, repair, upgrade, and modify offshore rigs and various and kinds of sea-faring vessels. Meanwhile, the property business is involved with property development and investment, and property fund management activities. Some key geographical markets for the property business include China and Singapore.

Finally, we have the infrastructure business, where Keppel Corp provides environmental engineering, power generation, logistics, and data-centre services.

The first nine months of 2013 haven’t been too kind to the conglomerate as revenue for the period fell 20% year-on-year to S$8.78b while profits actually dropped by 28% to S$1.16b.

That said, the company has actually been growing at a rather fast clip. With profits in coming in at S$564m and S$1.78b for 2005 and the last 12 months respectively, Keppel Corp has grown its profits at a compounded-annual rate of more than 15%.

In its latest third quarter earnings release, the company sees an “uncertain global economy” and only “moderate growth forecasts” for emerging economies. To deal with these less-than-ideal situations, Keppel Corp would “continue to focus on project execution, on time deliveries, and enhancing [its] engineering designs and capabilities.”

Its track record of profit growth has been excellent so far. Let’s see what it can bring in the years ahead.

3. SembCorp Industries

The market seems to be rather ambivalent regarding conglomerates as we have another one on the list of flat-movers in SembCorp Industries. The company has a multi-national utilities, marine, and integrated urban development business, though it is the former two that’s responsible for at least 90% of its annual revenues and profits.

For the nine months ended 30 Sep 2013, the conglomerate brought in decent numbers. Revenue for the period came in at S$7.82b, 6.1% higher than the previous year. Meanwhile, profits were up 9% to S$597m.

The marine business, represented by SembCorp Industries’ majority-ownership of SembCorp Marine (SGX: S51), did well for the first nine months of the year in terms of top-line growth, as the figure grew 26% year-on-year to S$3.83b. However, the marine business has been facing declining profit margins for a number of years, and it’s reflected in the numbers as profits from the business came in flat at S$226m.

The utilities business, meanwhile, was in a reversed situation. Revenue fell 9% to S$3.86b from a year ago while profits ballooned 27% to S$374m.

All told, SembCorp Industries is another conglomerate that laughs in the face of the notion that elephants can’t gallop as its profits have increased from S$303m in 2005 to S$801 in the last 12 months. That’s a compounded annual growth rate of around 13%.

So while its track record has been good, investors should still keep a watchful eye for its profit margins, especially with its marine business.

Foolish Bottom Line

A business’s real intrinsic value and share price often do not move in lock-step. While SPH, Keppel Corp and SembCorp Industries have basically not moved in close to a year, that does not mean they have not been building up or losing their real intrinsic value.

And this change in intrinsic value, comes from changes in their business fundamentals. Can SPH reinvigorate its media business and attract advertisers and readers again? Can Keppel Corp deal with less-than-ideal situations in the global economy? And, how can SembCorp Industries’ marine business start expanding its profit margins again?

Those are just some of the questions worth thinking about for investors.

As is often the case, a company’s share price would reflect its intrinsic value over the long-term. As investors, that’s what we want to focus on.

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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 Chong Ser Jing doesn’t own shares in any companies mentioned.