Would Benjamin Graham Buy Sembcorp Marine Limited?

Sembcorp Marine Limited (SGX: S51) repairs ships, builds ships and converts ships.  It also builds rigs and is engaged in offshore and marine engineering. The company, whilst based in Asia, has a global reach and runs shipyards in six hubs located in Singapore, China, Brazil, Indonesia, India and USA.

Over the last few years, Sembcorp has suffered from falling profits which has seen its share price drop significantly. From highs in the last year of S$4.63, the share price now stands at S$3.57, which is a mere 3 cents above its 52-week low.

However, recently the company’s management has shown a willingness to invest. The company has plans for four new docks in Singapore and a new shipyard in Brazil too.

Of late, the company announced plans to invest over S$200m into a multifunctional steel fabrication facility. This would appear to suggest a sense of optimism amongst the management at Sembcorp. Could this be something that we should share in also?

Sembcorp’s tumbling share price could provide a buying opportunity for value investors. With a PE of around 13, Sembcorp looks relatively cheap especially for a constituent of the Straits Times Index (SGX: ^STI).

Moreover, despite falling profits the company maintains a healthy earnings yield of 7.2%. This has allowed Sembcorp to reward investors with a dividend yield of 3.3% that comfortably beats the risk-free rate of return of around 2.4%.

Some might point to its high price-to-book value of around three a sign that Sembcorp could be expensive. Others might say that a current ratio of only 1.16 could mean that the company has taken on too much in the way of liabilities.

However, with total debt standing at less than a quarter of its net current assets, it appears the company is in good financial health.

Sembcorp has many attributes of a value company. But the question is whether the downside is now limited and whether the company can start to grow off the back of its investment.

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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 Adam Kuo doesn’t own shares in any companies mentioned.