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Could Keppel Corporation Limited Be The Best Value Conglomerate?

Industrial conglomerates are defined as diversified industrial companies with a portfolio of business activities across three or more sectors.

Business diversification could  be beneficial to companies and to their investors. It could, for instance, open up the company to a larger customer base and it could also help protect the company against future uncertainties – something that should not be undervalued in current markets.

But diversification also comes with risks, particularly as companies move away from their comfort zones.

There are seven such conglomerates listed on the Singapore market, with a total market capitalisation of around S$132 billion. That makes up over half of the ASEAN region’s Industrial Conglomerate sector.

The two dominant companies in terms of size are Jardine Matheson Holdings Limited (SGX: J36) and Jardine Strategic Holdings Limited (SGX: J37). Both are capitalised at around S$50 billion.

Both conglomerates have similar price to earnings ratios of around 13, which is not dissimilar to the market average for the Straits Times Index (SGX: ^STI) of 14 times earnings. As to which of the two offers better value, if at all, we need to turn to dividend yields. Jardine Matheson yields 2.4% compared to only 0.7% from Jardine Strategic. But neither yield is likely to see a rush of investors beating a path to either of the company’s doors.

A look at the price compared to book value suggests that it could, in fact, be Jardine Strategic Holdings that represents the slightly better value. With a Price-to-Book ratio of 0.9, versus 1.1 for Jardine Matheson Holdings, Jardine Strategic is theoretically selling at a 10% discount.

The industrial conglomerates sector provide further examples of how different measures of value can offer seemingly contradicting views on how expensive or how cheap a company is.

Bonvests Holdings Limited (SGX: B28), Hong Leong Asia Limited (SGX: H22) and Gallant Venture Limited (SGX: 5IG) are all priced significantly below their book values. However their high earnings multiples are not especially compelling. Bonvests and Hong Leong are valued at 17 times earnings, while Gallant is valued at over 40 times earnings.

Keppel Corporation Limited (SGX: BN4) is valued at around 15 times earnings and its dividend yield of nearly 4% could appeal. However it has a price-to-book of around two.

It is rare to find a true value company. In the case of conglomerates, it can be especially difficult. That could be because investors are willing to pay more for the benefits and safety that some of these companies could provide.

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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.