Keppel Corporation Limited‘s (SGX: BN4) share price is currently at S$6.33, which is just 4.6% higher than a 52-week low of S$6.05. This raises a question: Can Keppel Corp’s share price be considered cheap now? This question is important because if the company’s share price is cheap, it might be a good opportunity for investors.
As a quick introduction, Keppel Corp is a conglomerate with major business segments that include: Offshore and Marine, Property, Infrastructure, and Investments.
In the first nine months of 2018, Keppel Corp raked in S$4.29 billion in revenue, of which 43.9% came from the Infrastructure segment. The Offshore and Marine segment is next in line in terms of revenue contribution (32%), followed by Property (23%), and Investments (2%). Interestingly, the picture looks dramatically different when we consider Keppel Corp’s profit for the same period. The Property segment actually accounted for the lion’s share of the conglomerate’s total profit of S$810.9 million with a weighting of 93%. Both the Offshore and Marine and Investments segments were loss-making, while the Infrastructure business generated profit of S$127.1 million.
Geographically speaking, Singapore was Keppel Corp’s largest revenue source in the first nine months of 2018, accounting for 74% of total revenue. China is the next largest with a share of 13%.
There is no easy way to determine whether Keppel Corp’s shares are cheap. But, we can still get some insight by comparing the conglomerate’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 1.0, which is lower than the SPDR STI ETF’s PB ratio of 1.07. It’s a similar picture with the dividend yield. Keppel Corp’s dividend yield of 3.8% is higher than the market’s yield of 3.58%; the higher a stock’s yield is, the lower is its valuation. The PE ratio is where Keppel Corp fails to shine – at its current share price, Keppel Corp has a PE ratio of 35.2, which is significantly higher than the SPDR STI ETF’s PE ratio of 10.9.
In sum, we can argue that Keppel Corp is valued in line with the market. Despite a slightly more attractive PB ratio and dividend yield, the company’s PE ratio is much higher.
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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.