Why Has Sembcorp Industries Limited’s Share Price Fallen By 14% In Just Over A Month?

Sembcorp Industries Limited (SGX: U96) is a bona fide conglomerate with four major business segments: Utilities; Marine; Urban Development; and Others. The Marine segment is made up of Sembcorp Industries’ 61% ownership stake in the Singapore-listed marine engineering firm Sembcorp Marine Ltd (SGX: S51).

On 2 February 2018, the company’s stock price closed at S$3.57. Today, in just over a month, Sembcorp Industries’ shares are trading at S$3.07 apiece, which represents a decline of 14%. What may have caused this?

Reasons for a decline

There can be many reasons behind a stock’s price decline. But, the reasons can generally be classified as business-performance-related, or investor-sentiment-related.

The former deals with how a stock’s business has performed or is expected to perform. And in terms of business performance, one of the really important numbers would be the stock’s profits.

Meanwhile, the latter is about the overall mood of market participants – are investors more greedy than fearful, more pessimistic than optimistic et cetera? In general, negative emotions (fear and pessimism) tend to drag down the prices of stocks while positive emotions (greed and optimism) tend to push up stock prices.

The case with the Sembcorp share price

In Sembcorp Industries’ case, I believe it’s the former at work. The table below shows some important items from the conglomerate’s latest quarterly earnings update (it’s for 2017’s fourth quarter):

Source: Sembcorp Industries 2017 fourth quarter earnings presentation

We can see that all the measures of Sembcorp Industries’ profitability, namely, profit from operations, EBITDA (earnings before interest, taxes, depreciation, and amortisation), EBIT (earnings before interest and taxes), and net profit, were lower on a year-on-year basis. The declines were driven by challenges faced in Sembcorp Industries’ Marine segment (there was lower business volume and additional cost accruals for floater projects) and lower profitability in the Utilities business. So, it’s clear that the conglomerate’s bottom-line performance was poor in the reporting quarter.

Going forward, I think Sembcorp Industries will need to demonstrate a turnaround in its Marine business and also deliver less volatile earnings in its Utilities segment before a sustained turnaround in its stock price can happen.

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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.