Keppel Corp’s massive fine of USD 422 million over corruption charges had cast a spotlight on rival Sembcorp Marine. The record fine had raised questions on whether Sembcorp Marine would be implicated and created much uncertainties for the company. This is because it is not known if Sembcorp is currently being investigated by the authorities over corruption charges. Nevertheless, it is timely to review whether it is opportune to invest in the parent company, Sembcorp Industries Ltd.
Being rated as the world no.2 oil rig builder, Sembcorp Marine had endured a challenging FY2017 like Keppel Corp. Revenue decreased for rig building and offshore platform projects as well as contracts termination and inventories written down arising from the contract signed in October 2017 to sell nine jack-up oil drilling rigs. Revenue for nine months shrank to $1.7 billion, a decrease of 36% year-on-year. But net profit remained stable, at $28 million, an increase of 3% year-on-year.
Notwithstanding the above, it should be noted that Sembcorp Industries Ltd (SCI) is more than just Sembcorp Marine, which is listed separately on the mainboard of the Singapore Exchange. SCI has three main businesses namely, Utilities, Marine and Urban Development.
Given the choice, I would prefer to invest in SCI than Sembcorp Marine because the parent company has positioned itself very well with strategic diversified businesses. On the surface, the three business units may seem to be in different business arenas but actually the core competency lies broadly in engineering – designing, building and operating projects This means that Sembcorp Industries is able to extract synergies among its business units.
A defensive investment moat?
Another thing I like about Sembcorp Industries is that it specialized in businesses that are sustainable in the long run. Whether you like it or not, water and electricity are critical resources for life. As cities developed, we need people to clear the sewage as well. Being a global leader in the provision of energy, water and solid waste management, Sembcorp Industries does the “dirty jobs” that not many people wanted to do. But it is this niche that gives Sembcorp Industries the competitive edge as it established a strong track record in supplying power, steam and natural gas, and water and wastewater treatment solutions.[The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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