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SembCorp Industries: Partial divestment.

Thursday, April 16, 2015

Yesterday, a reader asked me if I would be selling my investment in SembCorp Industries. I replied that if I thought SembCorp Industries was fairly valued at $5.00 when I made my first purchase a few months ago, would I sell at a lower price?

Honestly, the investor in me said to stay invested while the trader in me said to look at possibly selling at least part of my investment. Let me talk to myself and throw some light on the matter.




As SembCorp Industries' stock price fell in recent months, I added to my position at various price levels: $4.80+, $4.50+, $4.20+, $4.10+. My memory is a bit patchy but something like this. I believe that SembCorp Industries is a good company and that Mr. Market was overly pessimistic as the stock kept falling in price.

Then, whether I would sell or not would depend on whether the investor or the trader in me wins. Finally, the trader won but only after giving a concession to the investor. What do I mean?

I initiated a position in SembCorp Industries at what I thought was a fair price and I said so in a blog post soon after the purchase. I went in with my eyes open and knew what I was getting for the price I paid. However, given a choice, the investor in me would prefer to purchase an undervalued stock.

So, having added at lower prices as well, recovering the capital utilised for purchases made at higher prices which fairly valued SembCorp Industries, retaining the purchases made at lower prices which undervalued the conglomerate somewhat is a palatable proposition.

After looking at the charts this morning, I determined that there should be stronger resistance at $4.84 if the stock price continued its ascent today.




So, I put in sell orders at $4.82 and $4.83.

I still like SembCorp Industries and if its stock price were to weaken to retest its lows in the last few months, I would probably be adding to my position again. If its stock price should rally after taking a breather, I would stand to gain with my remaining investment in the conglomerate.

Related posts:
1. SembCorp Industries: A safe price.
2. AK went shopping in the stock market.
3. Investing for income and position sizing.

48 comments:

Cory said...

Partial divest as i noticed the resistance as well today.

Lazy Cat said...

Usually how many % profit will you then consider selling your stocks? Will you wait till it becomes a multibagger or 20-30% is good enough for you?

AK71 said...

Hi Lazy Cat,

I am not too hung up on how much I must make from a stock in percentage terms before I sell.

If I have to sell it, I will sell it. If it is a good time to sell it, I will sell it. There are many reasons for selling a stock. It is hard to create a list just like this but I will sell as long as it makes sense to me. :)

Hosaybo said...

Selling is an art, especially when the stock is like on fire. However, no stock goes up forever and a pull back is normal. The prob of pull back is higher after a few break in resistance. Guess partial selling of holdings to lock in profit may make sense provided you see better opportunities and like to diversify. That's part of trading strategy- diversify your gain in other opportunities and rebalancing the portfolio such that in relative term, your percentage holding in one stock is trimmed down.

Hosaybo said...
This comment has been removed by the author.
Rebel said...

$3.98

I will wait when this candy is on sale.

AK71 said...

Hi Rebel,

You make me feel like getting out of my remaining long position now. LOL. ;p

AK71 said...

OCBC Investment Research said on Friday it has downgraded Sembcorp Industries to "hold" with a target price of S$4.72.

This comes after Sembcorp Industries posted an 11 per cent year-on-year drop in revenue to S$2.3 billion and a 23.1 per cent drop in net profit to S$142.2 million for Q1 2015, slightly below the research house's expectations.

OCBC said 2015 is expected to be challenging for the Singapore energy business, but the overseas business is expected to continue to deliver a steady performance.

On the marine side, new orders remain minimal.

"After our rating upgrade on February 18, Sembcorp Industries' stock appreciated by about 16 per cent to close at S$4.86 on April 21, but has since retreated to S$4.49 versus February 17's close of S$4.20.

"We roll forward our valuations, and with a lower fair value estimate for Sembcorp Marine in our sum-of-the-parts valuation, we lower our fair value estimate from S$4.84 to S$4.72. Downgrade to HOLD, with a potential upside of 8.6 per cent (this includes a dividend yield of about 3.6 per cent)."

Source:
http://www.businesstimes.com.sg/stocks/brokers-take-sembcorp-industries-downgraded-to-hold

Jerome Foo said...

Hi ak,

The recent sell off of Semb ind on back of poor results seems a little excessive, and stock now is on the undervalued side. Would you be looking to accumulate?

AK71 said...

Hi Jerome,

In the last sell off, I accumulated at between $4.14 to $4.19. I am wondering if Mr Market could feel depressed enough to sell to me again at those prices or lower. ;)

boonchin.ng said...

More sell down please! I willing to offer three Old Chang Kee curry puff in exchange for one unit of SCI share.

Ping me! Ping me! :P

Wei Xiong How said...

SCI has breached the psychological barrier of $4. Anyone nibbling?

{SINGAPORE (June 4): Sembcorp Industries ( Financial Dashboard) is in “preliminary” talks with 1Malaysia Development Bhd on a possible acquisition of the government-owned strategic development fund’s wholly-owned subsidiary Edra Global Energy.

“This is really very preliminary. I can’t say whether we are keen or not. It is one of those deals that we explore on a regular basis,” a company source says, adding that it was a surprise that news of the talks had leaked out at such an early stage.

The Edge Financial Daily reported today that Sembcorp joins IJM Corp ( Financial Dashboard) and Tenaga Nasional ( Financial Dashboard) as contenders for Edra Global which has an enterprise value of as much as RM18 billion ($6.56 billion).

Sembcorp is down 5 cents at $4 as at 10:14 a.m.}

Seems like Sembcorp is looking to find some value in the distressed company.

AK71 said...

Hi Wei Xiong,

Without taking in the possible acquisition of Edra Global Energy, at under $4.00 a share, SCI is definitely more attractively priced now. I am glad I held my horses and didn't nibble when it went under $4.20 and even $4.10 in recent sessions. I just kept chanting the word "patience" to myself. ;p

After all, I got some at $4.14 and $4.19 a share before. It didn't make much sense to me to add more unless the share price should decline much more. With the downtrend being very much in force, it was likely to happen. Now, using Fibo lines, I see stronger supports at $3.85, $3.77 and $3.68. I could buy more then. ;)

boonchin.ng said...

err, I added more just 2 days ago @ $4.05 ... Not too bad, but $3.85 is somehow attractive ... hmm ...

AK71 said...

Singapore firm Sembcorp Industries said on Tuesday (Jun 30) its joint venture will develop a 750-hectare integrated township and industrial park in northern Vietnam, its seventh industrial park project in the country.

Vietnam Singapore Industrial Park Joint Venture Co (VSIP JV) will develop the Vietnam Singapore Industrial Park (VSIP) Nghe An in phases in tandem with demand.

VSIP JV has received the investment licence for phase one of the project, which comprises 198 hectares of industrial land and 81 hectares of commercial and residential land. The investment in phase one will be funded partly by equity of US$15.2 million (S$20.5 million) from VSIP JV, with the remainder funded by external borrowings and project cash flow.

Industries targeted by VSIP Nghe An include garments, agribusinesses and fast-moving consumer goods. Nghe An province is located in Vietnam’s northern central region. It is located 400 kilometres from Hanoi and 70 kilometres from the Laotian border.

VSIP JV is a 49-51 joint venture between Vietnam’s Becamex IDC Corp and a Singapore consortium in which Sembcorp holds a 92.9 per cent stake.

Sembcorp's other VSIP projects are in Binh Duong, Bac Ninh, Hai Phong City, Quang Ngai and Hai Duong provinces.


Source:
http://www.channelnewsasia.com/news/singapore/sembcorp-to-develop/1950890.html

sgdigital said...

Any recent nibbling? Like your comments why the price is still weakening

AK71 said...

Hi sgdigital,

I suppose Mr. Market is still feeling pessimistic about SCI. That is why price action has been weak. Good answer. Can't go wrong with an answer like this. ;)

Why is Mr. Market feeling pessimistic? Well, I could make a guess or two and add to the noise out there but I won't. ;p

I don't think that the world will stop consuming crude oil and I don't think that utilities businesses will be going the way of the Dodo. SCI is experiencing a speed hump and I have already identified a few price points in an earlier comment which could see me adding to my investment in the conglomerate. :)

AK71 said...

Sembcorp Marine said on Wednesday morning that it has entered into an engineering and construction contract worth US$1 billion to build a ship for marine contractor Heerema.

The contract follows a letter of intent signed in March this year to build the semi-submersible crane vessel.

The ship is scheduled for delivery in the fourth quarter of 2018.


Source:
http://www.businesstimes.com.sg//companies-markets/sembcorp-marine-enters-into-us1b-contract-to-build-vessel

AK71 said...

SembCorp Industries:
My overnight BUY order at $3.77 is filled today. :)

AK71 said...

SembCorp Marine:
Bought more at $2.71 per share today. :)

Koala said...

Hi Mr. AK,

Nice work on accumulating SCI on its weakness. Do you have any new thoughts regarding SCI? I do believe that SCI is experiencing a temporary weakness and hence the price dip. With them quite aggressively taking on new projects, I believe the calmer waters are ahead. Of course, looking at the price continuously going down week after week does make me queasy and "sea sick" :S

AK71 said...

Hi Koala,

I will say that "temporary" is relative. This bout of weakness, this challenging situation, whatever we call it, could last a couple of years. It wouldn't surprise me. Why do I say a couple of years?

From my research, it is obvious that the oversupply situation with crude oil could last a couple of years because global demand is not growing quickly. With price of crude oil where it is, more marginal producers are likely to go bust. Equilibrium will be restored over time but that's just it. It takes time.

SembCorp Industries' new projects in India and China will take a bit of time to come online and generate revenue. Again, it will take time.

So, if we believe that SembCorp Industries is a great company with a good track record, if we believe that its weaker results are "temporary" and if we feel that its balance sheet is in relatively good shape, then, the best time to buy would be when Mr. Market is feeling pessimistic. :)

boonchin.ng said...

Hi AK,

I bought some @ $3.77, too ...

SMM result is rather weak, keep my fingers crossed on SCI result out on 4/8 :)

AK71 said...

Hi boonchin,

Unless results are exceptionally bad, I have a feeling that the immediate support ($3.77) should hold. SembCorp Marine's immediate support ($2.70) seems to be holding well even though they just announced weaker results.

Mr. Market seems to have factored in expectations for weaker results. ;)

boonchin.ng said...

Hi AK,

We just bought at the "suppose immediate support level" 3.77, and was "defeated" Think Mr. Market is really feeling pessimistic ;)

What's your bowling ball tells you on the next support level? Got to save up some "pocket money" to accumulate more.

AK71 said...

Hi boonchin,

Crushed like a cockroach, a certain matriarch once said in a local sitcom. LOL. ;p

Fibo lines suggest stronger supports are at $3.38, $3.26 and $3.13. Until the down trend reverses, however, supports could continue breaking. If we must buy, remember to nibble.

However, the MACD could be forming a higher low in which case we could see a rebound in SCI's stock price. When exactly? I don't know. :)

betta man said...

Keppel Corp also suffering from free fall. It is at $7.55 at the point of writing. >6% yield should dividend be kept constant.

boonchin.ng said...

Hi AK,

3.38, if dividend is cut to 14c, that's still a not-too-bad 4% yield.

Will be "fasting" for time being and nimble if 3.38 is tested .. ;)

AK71 said...

$3.38 BUY order for SembCorp Industries filled.

boonchin.ng said...

Hi AK,

You are fast! I queueing 1bid below (3.37) ... And some at 3.26 ... Am I too greedy? ;)

AK71 said...

Hi boonchin,

I usually put in overnight BUY orders so that I don't have to bother the next day or I might just forget.

Waiting for results announcement now. ;)

boonchin.ng said...

Hi AK,

Today SCI 出现「瀑布美景」;)

AK71 said...

Hi boonchin,

A low of $3.35 means you got your BUY order filled. ;)

boonchin.ng said...

Hi AK,

Yeah, BUY order filled ;)

Waterfall is great but is chilling, too! :D

Casey said...

Hi Ak,

Looks like the $3.36 is unlikely to return any time soon, the 2Q results showed reversal of the its profit declining trend. I have accumulated more and more loses from this sembcorp. It is time to accumulate more loses from Wilmar...
Haha.. the big sales is ending soon... I think... Are you going for last minute shopping? Or there could be a moving out sales later?

Cheers.

Casey.

AK71 said...

Hi Casey,

Like you, I have been "accumulating loses". Very wry way of putting it. I like. ;)

I did manage to get more Wilmar today at $3.09 a share. Of course, I don't know if the stock would weaken more in price from here. It just looked like a good deal to me to buy into such a wonderful business at a nice discount to NAV, a business which has taken Mr. Kuok a lot effort over the years to build. :)

Casey said...

Hi Ak,

Indeed a wonderful business, they arE into Africa market, and starting animal feed fat business. The supply chain is expending and complimenting each other segments. You got it at 3.09? I thought mine is already a very good deal with recent development, at 3.13, sigh!

Casey.

AK71 said...

Hi Casey,

The business, I feel, is more valuable today than it was a few years ago when it was trading at $7.00 a share. ;)

Well, maybe, we could join the Kuoks to buy more of Wilmar if its stock price should ever retest $3.00 a share. ;p

Casey said...

Hi Ak,

Out of my top five investments SCI, OCBC, Wilmar, MCT, and Saizen, my loses in SCI is tremendous, loses in Wilmar is getting manageable, and maintains substantial paper gain for the rest. Out of these stocks, to me, it think Wilmer is indeed my crème de la crème. I love it so much, the management visionary is something that I am very admire at and a live show of 'think and growth rich (corporate version)'....

3.00 is indeed another chance for me to accumulate more, one day hopefully it will grow to become another Nestle or ADM, pay fat dividend...to us...

Casey.

AK71 said...

Hi Casey,

I share your sentiments when it comes to Wilmar. Mr. Kuok himself said in the last AGM that CAPEX will decline significantly a few more years into the future and that is when Wilmar will start paying very good dividends to shareholders. :)

AK71 said...

A FB chat:


Ad Loh:

Hi AK, wish to seek yr advise on the long term situation of Sembcorp. I understand that you are vested as well and is wondering what are your triggers to decide whether to cut lost or continue to hold. Thank you.


Assi AK:

SembCorp is a market leader in what it does. Although I underestimated the severity of the downturn, I believe that SembCorp will be able to weather the storm. I also like the fact that it derives half its revenue from utilities and given time, this will grow and is going to become more important. If SembCorp's stock price should become much cheaper, I would be thinking of buying more and not selling. SembCorp also has a track record of paying dividends even in bad times and I am quite happy to be paid while I wait.

AK71 said...

SembMarine has clinched a more than US$1 billion engineering, procurement and construction contract to build three topsides for the Culzean Field development in the North Sea, the rig builder announced early Tuesday.

The contract amount, which includes long lead items, is for building a central processing facility, two connecting bridges, a wellhead platform and utilities and living quarters platform for Maersk Oil North Sea UK.

"We are pleased to secure this mega contract despite stiff competition from world class yards," said Ho Nee Sin, SembMarine's head of offshore platforms, in a statement.



Source:
http://www.businesstimes.com.sg/companies-markets/sembmarine-wins-us1b-north-sea-contract

Solace said...

Current Sembcorp valuation is very rarely seen in the past decade, it is somewhat comparable to what was on offer during the Great Financial Crisis of 2007-09

Entry share price: S$2.70
Price-to-earnings ratio: 7.0
Price-to-book ratio: 0.77
Dividend Yield: 5.9% (based on 2014 annual dividend of S$0.16 per share)

As share price decrease, i have paced myself accordingly. Current holding of Sembcorp is as followed

entry Price: $4.00 (15% allocation)
entry Price: $3.50 (25% allocation)
entry Price: $2.70 (60% allocation)



AK71 said...

Hi Solace,

Thanks for sharing. I am waiting for $2.50. ;p

Unknown said...

SCI is now at $2.44. AK, have you started nibbling (or gobbling)?

Kevin

AK71 said...

Hi Kevin,

There is no sign of a reversal. So, if we want to buy, we want to nibble. ;p

imdna said...

In the event of a Sembcorp Ind rights issue, what are your views on it? Say if rights are priced 10-20% below the current.

AK71 said...

Hi imdna,

It would depend on what SCI is going to use the money for. If it is to generate greater returns for shareholders, good. If it is to do something silly, not good. ;p

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