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Is Keppel Corp Really Cheap?

Keppel logo

Based on the price-to-earnings (PE) metric – a fancy way of saying how much we are paying for each dollar of a company’s earnings – conglomerate Keppel Corporation (SGX: BN4) seems one of the cheapest of the lot at the moment among the blue chips within the Straits Times Index (SGX: ^STI)

Here is the list of blue chips with the lowest valuations at the moment: Olam International (SGX: O32), Hongkong Land Holdings (SGX: H78), United Overseas Bank (SGX: U11), and of course, Keppel Corp.


Price: 11 Dec 2013

Trailing PE Ratio




Hongkong Land






Keppel Corp



Straits Times Index



Source: S&P Capital IQ; Data for SPDR Straits Times Index ETF

At a trailing PE – where a company’s current price is divided by its earnings for the last 12 months – of 11.0, Keppel Corp can be said to be a fair bit cheaper than the rest of its large-cap peers within the index.

But, that alone can’t tell us if Keppel just seems cheap, or is cheap. One way we can find out, is to use history as a judge.

Here’s how Keppel’s PE ratio has changed over the last 10-plus years (close to 11 years actually) since the start of 2003:

Source: S&P Capital IQ

Source: S&P Capital IQ

Based on the chart above, we can see that Keppel Corp’s current PE ratio is almost 15% lower than its historical average over the past 11 years – that can be a sign that it is cheap.

At the same time however, it’s also good to point out that looking at PE ratios this way does have its disadvantages. This is how investor Ric Dillon puts it (emphasis mine):

On the behavioural-finance side, one of many inefficiencies comes from people anchoring on the past. People assume something is cheap, say, just because it hasn’t traded at such a low valuation for five or ten years. But that doesn’t matter, what matters is what will be.”

What this means is, if Keppel Corp’s future earnings growth falls way flat of its stellar past, it doesn’t matter if its PE ratio is low now. With flat growth or even declining earnings, Keppel Corp will be expensive even at a low PE ratio.

Foolish Bottom Line

The conglomerate – as its description suggests – consists of a number of moving parts that includes its marine business, infrastructure business, and property business. These businesses are represented partially by other locally-listed companies like Keppel  Telecomunnications & Transportation  (SGX: K11) (for the infrastructure business) and Keppel Land (SGX: K17) (for the property business).

Investors need to couple an understanding of the probable futures of those various businesses together with Keppel Corp’s low-by-historical-standards PE ratio to fully ascertain if it really is cheap.

At the very least though, Keppel Corp’s current low PE could make it a worthwhile target for further study.

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