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Three Things To Like About Sembcorp Industries

We go home and we jump in the shower after a hard day’s work. We tend to take these routine things for granted. But someone somewhere is making it possible. That is the first thing to like about Sembcorp Industries (SGX: U96).

The core business of Sembcorp Industries is utilities. The company provides energy, water and waste-management to both industrial and municipal customers. Gone are the days when Singapore used to suffer from regular power outages. Sembcorp Industries with 7,200 megawatt of power capacity makes sure that never happens.

The second thing to like about Sembcorp Industries is its reliable Net Income Margin. In general, utility companies are not high-margin businesses. After all, they have to balance the demands of affordable utilities with enough profits to sustain the business.

Sembcorp Industries is no exception. Its Net Income Margin is below the average for Singapore blue chips. While the 30 companies that make up the Straits Times Index (SGX: ^STI) generate around S$15 of profit on every $100 of revenue, Sembcorp Marine’s margin is 7.7%.

That said, there is a reassuring constancy about the margin. In 2011 it was 8.9%. In 2012 it was 7.3%. In 2013 it was 7.6% and in the last twelve months, it was 7.6%.

The consistent Net Income Margin coupled with above-average efficiency and a dollop of leverage has helped Sembcorp Marine deliver a decent Return on Equity for shareholders. At 12.9%, the company is generating S$12.90 of profit on every S$100 invested in the business. That is above average.

The third thing to like about Sembcorp Marine is its wide geographic footprint. Around two-fifth of the company’s revenues are generated in Singapore, about an-eighth in the US and over a-fifth from Europe. So, whilst Sembcorp Industries is perceived by some as a Singapore-centric company, it is, in fact, quite geographically diversified.

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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.