So much had been discussed lately on Sembcorp lately, be it Sembcorp Industries (SCI) or Sembcorp marine (SCM).
Both SCM and SCI stock prices are at their 5 year low.
The price decline is primarily after SCM issue profit warning on 1 Dec for coming quarterly result. This is at the back of one of the worst oil crisis for decades which resulted likely in the lack of new orders, potential terminations and postponements of existing contracts. SCI marine division owns ~61% of SCM. The marine division contributes ~>40% of SCI bottom line in 2014. If SCMis to suffer in profit, so will SCI then.
Not all bad
To buffer the bad news from rigs cancellation from Marco polo and postponement from North Alantic Drilling, SCI had announced a couple of good news thereafter also. SCI utility segment has signed an MOA to invest and develop a US$300mil gas-fired power plant in Myanmar and the completion of Fujairah Water and Power Plant in the UAE. Marine segment is also not all bad, with LNG dominating the headlines, after SCM announced record number of LNG repairs and upgrade over the years.
So when a Temasek-owned Blue chip which had such impressive results over the years has her share price start to tumble, investors' hands will start to get itchy. And ready to hit the buy button anytime?
Buy or not?
Investors then asked - Is SCI or SCM cheap enough to buy or nimble?
Whether to buy or not, many will turn to indicators such as the oil price outlook or all the various analysis to get the so called intrinsic value. But can my question is are all these checks important when a company is inherent cyclical and largely dependent on oil price? It's obvious that SCM's plunged in share price/ profits is related to the plummet of oil price. Can you then predict the oil price? If not, how can you predict the earnings of SCM/SCI?
Perhaps the biggest reason to buy or not has more to do with yourself rather than the price now or the oil price forecast.
- How long I intend to hold?
- Worst case scenario! am I able to take another 40% drop in price and sleep well?
- What if oil price tumble to $20-25 pb?
- What is my target sell price, if ever I am going to sell?
- Be very sure that this is under speculative stock buy. For a general guideline, normally it's prudent not to allow your total speculative stock be more than 5-10% of your total portfolio!
- Forget the hyped about the stock. Is there better buy elsewhere?
Remember: The biggest enemy is often yourself and not the forward outlook.
Earlier in Aug, I also blogged about why I am selling SCI at a hefty loss, although the price now is even lower. Refer here for the article.