The Motley Fool

Sembcorp Marine Ltd’s Share Price is Down 30% From a 52-Week High: Is It Cheap Now?

SembCorp Marine Ltd‘s (SGX: S51) share price of S$1.65 at the time of writing is down 30% from a 52-week high of S$2.35. Is Sembcorp Marine cheap now? If so, it might be a good opportunity for investors.

Determining cheapness

It’s difficult to determine if Sembcorp Marine is cheap, but we can get some insight by comparing the company’s current valuation with the market’s using three common metrics: the price-to-book (P/B) ratio, price-to-earnings (P/E) ratio, and dividend yield.

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

The company’s business

Sembcorp Marine provides offshore and marine engineering solutions across the world. Its expertise includes the construction of specialised sea-faring vessels, and turnkey solutions for the construction of oil rigs. The company is a subsidiary of Sembcorp Industries Limited  (SGX: U96); the latter owns 61% of the former.

The valuation numbers

Sembcorp Marine currently has a P/B ratio of 1.5, which is higher than the SPDR STI ETF’s P/B ratio of 1.1. The company’s P/E ratio is negative due to a net loss of S$78 million suffered in 2018; on the other hand, the SPDR STI ETF’s P/E ratio is 12.4. Also, the company did not pay a dividend in its latest financial year, mainly due to its losses. Comparatively, the market average’s dividend yield is at 3.6%.

So, Sembcorp Marine looks to be priced at a premium to the market due to its higher P/B ratio, despite its losses and the absence of a dividend.

Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.  

The Motley Fool’s purpose is to make the world smarter, happier, and richer. Like us on Facebook  to keep up-to-date with our latest news and articles.

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.