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SembCorp Industries: Increasing exposure.

Thursday, October 16, 2014

In a sea of red, I had many choices and I decided to increase my exposure to SembCorp Industries at $4.84 a share. This was one of the supports I identified in a reply to a reader. Read reply: here.




Based on what I feel are undemanding assumptions of a 40c EPS and a 15c DPS, my additional investment has an assumed PE ratio of 12.1x and a dividend yield of 3.1%. I feel that it is probably another fair entry price and, so, I did not bring out the heavy artillery.




With $4.84 failing to hold and the stock closing at $4.82 a share, we could see lower prices if sellers should continue to overwhelm buyers. Then, we could see $4.78 and $4.72 tested next.

The trading volume is very high on a massive down day. I cannot help but wonder if I could have a chance to buy SembCorp Industries at a PE ratio of 10x or lower in the coming weeks or months.

That would be when I bring out the heavy artillery.

Related post:
SembCorp Industries: "A safe price of entry."

34 comments:

yeh said...

i am qing for 3.75 tomorrow, wonder whether i can get:)

AK71 said...

Hi Yeh,

$3.75? :o

Or do you mean $4.75? ;)

$3.75, I will throw in everything, including the kitchen sink. ;p

Rick said...

Hi AK

Keppel corp also dropped a lot. PE below 10. Is this in your shopping list?

AK71 said...

Hi Rick,

With interest rates set to rise from sometime next year, I am somewhat wary of KepCorp's exposure to KepLand.

I much prefer SembCorp with its fortunes more or less 50/50 from O&M and utilities. I especially like its utilities business which will provide some stability in earnings as well as growth.

la papillion said...

Hi AK,

Haha, I had to pull myself from the screen :) I keep staring at 4.84 and thinking if I want to enter. I decided the coast is not clear yet....I'll wait :)

You got many arty shells. Anyhow fire also can kill enemies, but I only have 2-3 sniper bullets...have to be a bit more conservative LOL

Sillyinvestor said...

AK,

It seems a lot of the financial bloggers are aiming the same thing!!

Obviously, there might be some bleeding but there is no sense of fear in the air.

Too many Draculas sucking the blood from the street??

Btw given its almost 50%(I expect to go down further to maybe 40%) exposure to O and G through marine, would u not be concerned that the cycle is turning? My prelim and amateurish research shown it has peak and perhaps starting to turn. How long how severe of course is anyone guess,

AK71 said...

Hi LP,

Hahaha... You know I have missed out on a few pretty good investments before because I was waiting for a lower price each time. So, these days, I practice nibbling at prices which seem fairly good and not necessarily undervalued.

Well, the share price hit a low of $4.75 just now. My next buy order is waiting at $4.72. Join me? ;p

AK71 said...

Hi Mike,

Low hanging fruits for vampires, you think? Hahaha... Licking the blood off the streets is definitely less objectionable than biting into people's necks. LOL.

There is talk about how there could be cheaper forms of energy and cheaper forms of oil. For the former, I will ask how long would it take for the infrastructure to be built to a critical mass and how reliable is it? For the latter, I will ask whether every country will have access to it?

What I would be concerned about is whether exploring for and extracting oil out at sea is still going to be viable. If it still makes business sense, it will probably continue. Of course, key to this is oil price.

If we believe that the world still needs crude oil and that the global economy is muddling along, growing ever so slowly, then, there is still growth and there is still a demand for oil. Oil could become cheaper in the meantime but I don't think the bottom will fall out of its price. If it should happen, we are all in big trouble anyway.

There are certain things in life that will take a whole lot of effort to change and, in some cases, a lot of time. It won't happen at a snap of a finger.

la papillion said...

Hi Ak,

Haha, that's life, we gain some we lose some :) I'll wait patiently for 4.5+ :) I gentlemen, you go first :)

Lazy Kat said...

Agreed with your comments above, oil will still be a key energy resource in the foreseeable future. Nibbled @ 4.78.

AK71 said...

Hi LP,

I am the lab mouse. I go first. -.-"

See you later, then. ;)

AK71 said...

Hi Kat,

I like your price more than mine. ;)

钢铁侠 said...

Do you plan a post for First Reit? :) another record divided declared..

gregg

pf said...

Now i am tempted...
Shld my hdb flat wait a while more?

AK71 said...

Hi greg,

I don't know if there is anything important to say other than how First REIT has proven to be a great investment for income. :)

AK71 said...

Hi pf,

Hahaha... Hmmmm... ;p

If you believe that you can now get some great companies at great prices and if you believe that HDB flats are going to see prices decline in the next couple of years, then, maybe. ;)

AK71 said...

Demand for oil has actually been on the rise -- up four percent since the beginning of 2012, according to IEA data. Instead, the recent price bust is mostly the result of a new glut of oil supply. Massive discoveries in North Dakota and Texas have driven down prices, even amid tensions in the Middle East and Ukraine that in leaner oil days would have driven prices higher. Roughly 3 million more barrels a day are being produced now than in 2011.

Even though this price collapse is largely supply-driven, it's still threatening to strand oil assets and may be giving investors a hint of stranded assets to come. Many countries that depend on oil revenue to balance their budgets are already operating in the red.

Saudi Arabia needs Brent oil prices to exceed $91 a barrel, according to IMF estimates. That's interesting, because Saudi Arabia actually has the ability to drive the price higher but has so far declined to do so. The biggest OPEC producer, with almost $800 billion in cash reserves to lean on, is opting instead to maintain market share and to test the break-even points of U.S. shale oil.

It's a tough test, and OPEC may not like the results. The break-even for American oil has been falling as fracking techniques are refined. The U.S. is producing unconventional oil with acceptable returns in the range of $70 a barrel for oil, less than most OPEC nations can sustain.

Source:
http://finance.yahoo.com/news/oil-cheap-not-cheap-americans-212523257.html

pf said...

No lah. I shall not put it on hold for so long. :)

Felix Leong said...

I too am a firm believer in semb corp industries. I fired my last few bullets this week on semb corp and keppel corp as I feel that Oil should defend itself well at the $80 level.

Good luck to all vested, CHeers!

Casey said...

Hi Ak,

I felt great that we have so many choices of high quality blue chips stock in Singapore at very undemanding price, Sembcorp industry, Wilmar, etc... I felt like transferring all funds from other stock market back to SGX. Haha.

Are you still interested in Wilmar? I have be loading it bit by bit.

Casey.

AK71 said...

Hi Casey,

Yes, I am still interested in Wilmar. I added more at $3.00 but I missed that super duper price of $2.93 very recently. When one of our guest bloggers told me he got that price, I went,

"Huh? Really? Aiyoh! I missed that!"

I just replied to a FB post and I mentioned Wilmar. Maybe, I will take a screen shot and put it up as a blog post here before I go out to run errands. ;p

Solace said...

I think the guest blogger knew that that you are interested in Wilmar.

He must thinking "AK surely couldn't have ignored this counter when at $2.93, he would surely joined him and taken a nibble" LOL

Cos all bargain hunters like sales mah, but this sales is over in 30 mins i think. A real quick fire sales.

AK71 said...

Hi Solace,

Guest blogger so cheeky! Hmph! LOL! Anyway, congratulations lah. ;)

Ya, it is like one of those 30 minutes special offer kind of thing in the departmental stores. Must be at the right place and the right time!

I just bought some door stoppers at 80c each earlier. I would have had to pay $2.00 for these at Daiso but the neighborhood store was having a closing down sale and I happened to be there. Haha... ;p

AK71 said...

Keppel Land on Monday (Oct 20) posted a 10.6 per cent drop in third quarter net profit, hurt by lower income from development projects.

The property arm of oil rig builder Keppel Corp earned S$113 million in the three months ended September, down from S$126 million in the same period a year ago.

Keppel Land said revenue and profits from property trading - a term it uses to describe contributions from residential developments - fell by more than 60 per cent during the July-September quarter from a year ago. But net profit from property investments jumped 77.6 per cent year-on-year to S$71 million, helped by gains from the divestment of Equity Plaza.

Looking ahead, Keppel Land said recently announced office and retail developments in cities such as Jakarta, Ho Chi Minh City and Manila are in line with its strategy to scale up its commercial presence overseas. The property fund management business will be further developed for recurring income, it added.

Source:
http://www.channelnewsasia.com/news/business/singapore/keppel-land-q3-net-profit/1425834.html

Casey said...

Hi Ak,

Although the KLL's result is not as impressive as the year before, it has its price reflected on it. The result is still better in comparison with other property stocks. I think the KLL's management has indeed demonstrated a fine art of corporate financial skills, the divestments were well timed and well calibrated. It has increased my confidence in it and I am planning to accumulate it more on weakness.

What would be KLL's worth to you at NAV of 4.58, 2.80?

Casey.

AK71 said...

Hi Casey,

From buying at a discount to valuation perspective, if I were to be offered a price of $0.50 for what is worth $1.00, I would probably bite. LOL. ;p

AK71 said...

Keppel Corp has reported a 9.5 per cent decline in third-quarter net profit to S$414.2 million from a year ago. In a statement on Tuesday (Oct 21), the company said the decline was due to lower profit contributions from its property division.

Source:
http://www.channelnewsasia.com/news/business/singapore/keppel-corp-posts-9-5/1427650.html

Casey said...

Hi Ak,

Get Keppelland at $0.50 for every $1.00 worth? Lol, the same way you did on OUE, let me get myself killed first at $2.50, 25cent more than what you consider to offer, haha provided if anyone wanted to offer me at this price, given its PE ratio of 11-13 for the current price. I am not too greedy, at the price of 2.50, I will have many nights with sweet dream.

Anyway, wish us get the price that worth the bite(s).

Casey.

AK71 said...

Hi Casey,

Haha... Sounds like you have done a thorough analysis of Keppel Land. OK, maybe, I will join you at $2.50. ;p

Been too busy. I will take a more detailed look at Keppel Land when I have more time. Thanks for the heads up. :)

boonchin.ng said...

Hi AK,

With the latest 3Q result and price below $4.7, nibble more? Or you done that this afternoon? :)

What's yor view on the 3Q result? From net cash to net debt ... Thanks!

AK71 said...

Hi boonchin,

With 9 months' EPS at 31c, that sits nicely with my more conservative estimate of a 40c EPS which I shared in my blog earlier.

I have already set my next buy price at $4.40 a share which gives us a PE ratio of 11x. Of course, it might or might not happen.

A gearing ratio of 0.33x is probably more than manageable for SCI. I see that the interest cover ratio is more than 20x.

If debt is used to drive earnings, it isn't a bad thing. However, we will have to keep an eye on this.

boonchin.ng said...

Hi AK,

Thanks for the quick update. Have not really done my research on SCI :( But have an idea what I should do over the weekend (just downloaded past 5 years annual report) ... Lol

Rebel said...

$4.38
I'm waiting

oradba168 said...

The SembCorp Industries counter has dropped to $4.17.
If drop further to 3 zone, may consider to invest.

I invest Keppel Corp at 9.68, now it has dropped further to 8 zone, abit regret, i should have wait more patiently.

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