Should You Invest In The Capital Goods Stock Hor Kew Corporation Limited (SGX:BBP)?

Hor Kew Corporation Limited (SGX:BBP), a SGD$25.51M small-cap, is a engineering and construction (E&C) company operating in an industry which is expected to benefit from higher gross domestic product, high consumer confidence, and upbeat private sector investments. Along with these positive signals is the potential for significant infrastructure plans and public-private partnerships to fund them. Capital goods analysts are forecasting for the entire industry, negative growth in the upcoming year . An interesting question to explore is whether we can we benefit from entering into the E&C sector right now. Today, I will analyse the industry outlook, and also determine whether Hor Kew is a laggard or leader relative to its capital goods sector peers. Check out our latest analysis for Hor Kew

What’s the catalyst for Hor Kew's sector growth?

The E&C industry in Singapore faces growing competition from players in China, Korea and India. Firms in rapidly growing economies have spent the past decade focusing on their home markets, gradually building up cash positions and internal expertise. Now, as growth eases in their home markets, they are expanding outward and seeking to compete against established global players. In the past year, the industry delivered negative growth of -8.11%, underperforming the Singapore market growth of 7.79%. Hor Kew lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its E&C peers. As the company trails the rest of the industry in terms of growth, Hor Kew may also be a cheaper stock relative to its peers.

Is Hor Kew and the sector relatively cheap?

E&C companies are typically trading at a PE of 10x, in-line with the Singapore stock market PE of 15x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 8.42% on equities compared to the market’s 7.92%. Since Hor Kew’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Hor Kew’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? Hor Kew has been an E&C industry laggard in the past year. If your initial investment thesis is around the growth prospects of Hor Kew, there are other E&C companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Hor Kew fits into your wider portfolio and the opportunity cost of holding onto the stock.

Are you a potential investor? If Hor Kew has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its E&C peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at Hor Kew’s future cash flows in order to assess whether the stock is trading at a reasonable price.

For a deeper dive into Hor Kew's stock, take a look at the company's latest free analysis report to find out more on its financial health and other fundamentals. Interested in other capital goods stocks instead? Use our free playform to see my list of over 100 other E&C companies trading on the market.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.