At What Price Would Benjamin Graham Buy COSCO Corporation?

COSCO Corporation (Singapore) Limited (SGX: F83) is a marine conglomerate providing ship repair, ship building and engineering solutions mainly in Singapore and China.

The company’s share price has steadily declined over the last four years from over S$2 a share to its current price of around S$0.49 a share.

This fall will have value investors asking if the share-price decline is justified. Have the shares fallen sufficiently to make them cheap? Does the business maintain enough potential to rebound and thus be viewed as a value opportunity?

COSCO’s top-line revenue has seen very little change over the four years. This is not exactly ideal from a business point of view, since companies do need to grow, continually.

The fall in share price stems from the drop in the company’s net income. It has fallen to worryingly from four years ago. COSCO’s resulting earnings yield is a meagre 1.9. A value investor seeking a 4% earnings yield would want the share price to fall a further 50% to just S$0.23 a share before considering stepping in.

COSCO has cut its dividend payout, whilst also raising its payout ratio. The current yield is only 1.4%. At the current distribution, a share price of S$0.32 would be needed for the yield to rise to more than 2%.

Perhaps a glimmer of hope comes from looking at the company’s balance sheet. The company is priced below its book value by about 20%, which offers a margin of safety.

The total equity in the company has also grown by about 10% over the past four years, while the current ratio has risen from just below 1 to 1.4. It would appear the financial health of the company has improved.

It would seem that COSCO shares would need to fall further – to as low as $0.23 – before it might interest the likes of Benjamin Graham. But at that level there might be other more pressing issues that value investors might want to consider.

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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.