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Keppel Corporation Limited’s Stock Is Up By 24% Over The Last 12 Months: Is It Expensive Now?

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Keppel Corporation Limited (SGX: BN4) is one of the largest conglomerates in Singapore’s stock market. It has four major business segments, namely, offshore and marine, property, infrastructure, and investments.

Over the last 12 months, Keppel Corp’s stock price has increased by 24% to S$8.22. This raises a question: Is it an expensive stock now?

Unfortunately, there is no easy answer. But, we can still get some insight by comparing Keppel Corp’s current valuations with the market’s. The three valuation metrics I will focus on are the price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield.

I will be using the SPDR STI ETF (SGX: ES3) as a proxy for the market; the SPDR STI ETF is an exchange-traded fund that tracks the fundamentals of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).

Keppel Corp currently has a PB ratio of 1.29, which is only marginally higher than the SPDR STI ETF’s PB ratio of 1.24. But, the conglomerate’s PE ratio of 49.5 is significantly higher than the SPDR STI ETF’s earnings multiple of just 11.55. Coming to the dividend yield, Keppel Corp also loses out to the market. It has a yield of 2.7%, compared to the SPDR STI ETF’s yield of 2.81%. The lower a stock’s yield is, the higher is its valuation.

One thing that investors should pay attention to about Keppel Corp’s PE ratio is that it is distorted by the low net profit of S$217 million in 2017, which was mainly a result of a large non-recurring expense of S$619 million. The expense stems from a fine that’s related to the company’s involvement in corruption issues in Brazil. If I adjust for the one-off event, Keppel Corp’s PE ratio will fall to just 16.7. Nonetheless, it’s still higher than the market’s PE ratio.

So when I put everything together, I can argue that Keppel Corp is trading at a premium to the market.

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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.