Sembcorp Industries Limited (SGX: U96) is a bona-fide conglomerate with four major business segments: Utilities; Marine; Urban Development; and Others. The Marine segment’s contribution comes from Sembcorp Industries’ 61% ownership stake in Sembcorp Marine Ltd (SGX: S51).
At the current price of S$2.75, Sembcorp Industries’ shares are just 1.9% higher than a 52-week low of S$2.70. This raises a question: Is Sembcorp Industries actually cheap now? This question is important because if Sembcorp Industries is cheap, it might be a good opportunity for investors.
Unfortunately, there is no easy answer. But, we can still get some insight by comparing Sembcorp Industries’ 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).
Sembcorp Industries currently has a PB ratio of 0.71, which is lower than the SPDR STI ETF’s PB ratio of 1.15. Yet, SembCorp Industries’ PE ratio is higher than that of the SPDR STI ETF’s (33.6 vs 10.6). In addition, the conglomerate’s dividend yield of 1.4% is lower than the market’s yield of 3.0%. The lower a stock’s yield is, the higher is its valuation.
When I put it all together, I can argue that Sembcorp Industries is priced at a premium to the market despite its lower PB ratio – the conglomerate has a higher PE ratio and lower dividend yield.
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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.