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Sembcorp Marine Ltd: Is It All Gloomy As An Investment?

Rewind a few years back and you can see that oil was trading at about US$130 per barrel. Around that time, many analysts were forecasting that oil will probably rise as high as US$200 per barrel.

But if you look at oil prices as of today, you probably will get a shock (if you haven’t been following) – the US$200 price tag is nowhere to be seen. Instead, oil is trading at around US$40 per barrel.  Amazingly, this time around some analysts are calling for US$20 per barrel in the future.  (A logical question to ask here would be how much I can trust these analysts?)

Many oil-related companies are listed on Singapore’s stock market. There are the two big rig builders, namely, Keppel Corporation Limited (SGX: BN4) and Sembcorp Marine Ltd (SGX: S51). There are also other companies providing services to the industry, such as Ezion (SGX: 5ME) and Ezra Holdings Limited (SGX: 5DN) and many more.

All four of the companies above (and most oil-related companies for the matter) have been affected by the recent plunge in oil prices and have seen their shares tumble between 25% and 80% since the start of the year. That’s a staggering drop if you think about it – $10 invested in January 2015 would be worth just $2 to $7.50 today.

Another way to look at it would be that at today’s prices, these companies could potentially offer investors superior returns over the long-term (provided the correct companies are chosen). With this in mind, let us take a look at Sembcorp Marine and highlight some of the good things the company has going for it.

One thing that is important to take note of with Sembcorp Marine is that the company has a sizeable net total order book of S$11.6 billion (as of 30 September 2015). This should help the company tide over the next few years (the company clocked annual revenue of S$5.8 billion in 2014) while waiting for the market to recover.

While there is a possibility of more delays in delivery – there is already a high-profile delayed order case that has occurred – due to Sembcorp Marine’s customers not seeing a need for expansion at the current price of oil, investors should be looking at the longer-term prospects of the company.

Also, due to Sembcorp Marine’s payment contract scheme of 20/80 (20% payment on order and 80% after completion) on at least some of its contracts, the company has an upper hand should its customers cancel orders as it can sell the rigs or vessels to other oil companies at an attractive price.

Sembcorp Marine is trading at a price of S$1.82 currently. This price is close to its NAV (net asset value) per share which stands at S$1.43. Sembcorp Marine also offers investors a dividend yield of 7.1% assuming that the company can continue to pay the same amount of dividend as it did in 2014.

It doesn’t seem that the world will be less reliant on fossil fuels in the near future, and this should give investors some reassurance as well.

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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 Esjay does not own shares in any companies mentioned.