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Three Things To Like About Sembcorp Marine

Ser Jing - Sembcorp Marine First Quarter Result, Full Steam Ahead (pic)During the California gold rush, it is reckoned that the real money makers were not the miners and diggers but instead those who provided the miners and diggers with picks, shovels and various assorted equipment for finding the yellow metal. Consequently, if you had a choice of investing in a miner or a pick-and-shovel provider, the smart money would have been on the latter.

Today, panning for gold in the Californian hills is kind of old hat but exploring for “black gold” is not. With many companies involved in the exploration and production of oil and gas, the smarter investor might prefer to focus on pick-and-shovel providers such as Sembcorp Marine (SGX: S51).

This is the first thing to like about Sembcorp Marine. The S$9 billion company is involved in offshore engineering worldwide. It repairs ships and tankers including ultra-large crude carriers. It also designs tankers for transporting liquefied gas, chemicals and livestock. Additionally, Sembcorp Marine, which was formerly known as Jurong Shipyard, constructs, transports and installs offshore production platforms and floating production facilities.

Sembcorp Marine’s second likable quality is its consistently high Return on Equity (RoE). Over the last three years, the RoE has been in the low twenties and thirties. This means that investors are getting a return of between 20% and 30% on the equity invested in the company. By comparison, the RoE for the 30 companies that make up the Straits Times Index (SGX: ^STI) is around 9%.

The third, though by no means the last, thing to like about Sembcorp Marine is its wide geographic footprint. About a quarter of the company’s revenues are generated in Norway; around a fifth from Australia, India and ASEAN countries and about a tenth from Singapore. Sembcorp Marine could therefore be a convenient way to achieve geographic diversification for your portfolio without having to invest in overseas assets directly.

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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 Director David Kuo doesn’t own shares in any companies mentioned.