Why Investors Should Give Sembcorp Industries Limited A Second Look

With the slump in oil prices, shares in Sembcorp Marine Ltd (SGX: S51), the offshore and marine arm of SembCorp Industries Limited (SGX: U96), declined further this week. Shares of the latter were not spared from the sell-off, either.

The decline is understandable given that oil prices have plunged from over US$100 to US$40 per barrel – a price not seen since the 2009 decline. However, investors might have overlook at a few positives about this company.

A quick snapshot of the 2014 report shows that utilities are the biggest profit contributor to the group, accounting for half of underlying profits.

This business is relatively stable – it has not been unduly affected by the drop in oil price. In fact, low energy price could even benefit the business, since fossil fuel, which is used as the feedstock for energy generation, is cheaper now due to lower oil prices.

Moreover, the company is actively growing this business. For example, the company has recently signed a Memorandum of Agreement (MoA) with the government of Myanmar to build and operate US$300 million power plant, which is expected to complete in 2018.

Analysts also project earnings growth next year, driven by the commissioning of 2 power plants in India.

The company’s share price has declined from a recent high of $4.88 to $3.00, equating to a p/e ratio of 7.8. It has a price-to-book ratio of 0.96 and a dividend yield of 5.30%.

Sembcorp Industries enjoys strong institutional support through Temasek Holdings, which owns 49.5% of the company.

As investors, we can never accurately predict the future performance of a company. But if we can invest in good companies when the odds are in our favour, we could generate a solid performance over the long term. At the moment, the odds could be in our favour.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.