Where’s The Value In The Materials Sector?

The Materials sector encompasses businesses involved in metals and mining, construction materials, chemical producers and forestry products. On the Singapore Exchange, the sector is represented by no less than 50 companies.

The sector is a traditionally a cyclical one and is susceptible to various factors. These include material prices, global supply and demand as well as economic sentiment.

The largest capitalised materials company on the Singapore market is The Straits Trading Company (SGX: S20). It is worth S$1.2 b. The company, which began life in 1887, originally focused on tin mining and smelting.

In more recent times the company diversified into hotel and property management and financial investment. Such diversification may be a draw for investors who might be worried about the volatility of the materials sector.

Straits Trading finds itself priced at S$2.98, which is closer to its 52 week low of S$2.68 than its high of S$3.50. It is also priced at a 10% discount to its book value. The company seemingly possesses some of the traits of an unloved, under-priced stock that many value investors might seek.

However, a price to earnings ratio of over 80 along with a paltry dividend yield of only 1.3% says otherwise. Investors’ attention should also be drawn to the falling revenue the company has experienced. Between 2011 and 2013 total revenue fell by nearly half from over S$1.5 billion to S$850 million.

The second biggest player is XinRen Aluminium Holdings Limited (SGX: MN5), which trades and sells aluminium products primarily in China.

With much uncertainty surrounding the economic slowdown in China investors might be looking for XinRen to be discounted significantly from its book value to provide a safety margin for their investment. Unfortunately, XinRen does not offer this. It is priced at 1.2 times book value and possesses a P/E ratio of 20, which is slightly on the high side.

The champion of value among the materials sector might be NSL Limited (SGX: N02). Whilst its price to earnings ratio of 26 is also on the high side and the company is priced at a 20% premium to its book value, other indicators suggest the company might be cheap.

NSL is priced at just 7 cents above its 52 week low of S$1.55 a share and sports a dividend yield of 6.2%. Adding to its appeal, NSL has enjoyed growth in its top line over the last four years.

None of the companies in the materials sector appear to be out-and-out value shares. However, that does not mean that they do not possess qualities value investors might find attractive.

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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.