Friday, September 12, 2014

ST engineering Part 2 - The more I read, the more confused I get

I have wanted to write about the electronics sector.

I ended up reading all 4 sectors, I even read the earliest AR available, AR 2000.

Looking ST engineering, my thoughts go through a state of flux. (Blogging about it, I hope helps)

1) Why not do some financial engineering, and spin off 1 or 2 sectors?

Now, I realized the amalgamation of the 4 sectors since 1997 is a strategy to gain Snergy and Mass to expand and gain foothold into new market. For example, the aerospace sector bought training school, electronics sector develop the software.They are successful in US, they have a foothold and subsidiaries in many countries, but I am still unsure if China and Europe can be the next "US".

2) It is not a stalwart, it is a grower.

Looking at the last 15 years, it is a multi-baggers in both top line and bottom line, too bad I can't say the same about the DPS.

3) I stop tracking its execution record or milestone.

I was working backwards from 2010, looking at the electronics sector, and realized that LSG is going places. From Bangkok Metro Lines in 2010, to Wuxi and Taiwan, and recently to Canada and San Francisco, ST seem able to make inroads to different cities with ease. Product on offer? From AFCS (Automated Fare), MMS (Maintenance), PIS (Passenger Info System), they do seem able to customized products for customers. When I read the 2000 AR, they are already doing that. Its capability seem intact.

4) Management and my limited understanding of future growth areas.

Reading about financial news, we know China and Asia excluding Japan is going through rapid urbanization. Trains and transport system demand will increase. What is surprising, is that they are not just winning contracts from China, but also US and developed cities.

I have an opportunity to talk a successful businessman involved in investment for British Telcom, I ask about his opinion/ thoughts on what are some of the value-adding and successful exports Singapore do. His answer: Eco city, it is still small, but the potential is there, with environmental awareness of populace in many countries rising.

Tianjin Eco City is hardly a success if you ask me. But, in SIngapore, I know we are building MRT until 2030, I know Jurong lakeside area and the future 3 HDB towns, Tampines North, Biadarri and Punggol West will be test bed for SMART city living. ST engineering will have no lack of local contracts.

In marine, they have the capabilities to build a range of ships, from OSV to APHT etc.


Conclusion:
When I research on Venture, I ask myself if the capabilities are intact and if they are still competitive. When I read ST engineering, trying to pinpoint its capabilities is taunting as there are just too many, until I came to the conclusion that innovation and customization are not just slogans chanted but are indeed the capability of the company.

The company also managed to get very big names for directors. The more recent one include Olivia Lum from Hyflux as a non-executive director. Enviromental Engineering and Services is still a small and young (unveiled in 2008) business under the Marine Sector(I wonder why? I thought LSG would be more appropriate ), but I believe the room for growth is there.

ST engineering reason for 75% payout for dividend over the next few years due to expansion needs and withholding tax issues fall rather flat on me. It made me, who go after dividends, less enthusiastic.

No doubt a good company, but I think I need to read some other GLCs like Keppel or Sembcorp or even SIA engineering for comparison with the aerospace sector, before I clear my mind of further questions. Applying porter's five forces, I would like to know more about their competitors.

Anyone confused after reading this post, my apologies, I myself is rather confused.



8 comments:

  1. Hi sillyinvestor,

    Thanks for the writeup :)

    Still a big bugbear for you eh, the 75% payout? I'm less concerned with that. As long as it's above 3.5% plus minus, I'm okay. As mentioned, I'm getting this to prepare for an environment of gloom and doom and interest rates rise. Given that, I'm quite sure ST engineering should be able to survive well for me to build a position.

    Still got to check it once a while, but it's one of those companies that you put money in and forget about that you own it until dividend time, lol

    ReplyDelete
  2. Hi LP,

    I have this thought too, although dividend is a low 4%, this will be a company that I dared to average down in a downturn.

    This is perhaps also a company where its fate is a telling sign of Singapore Inc. If you believe in SIngapore, you can believe in it. The top brains are in it, it is in the super high barrier of entry of local defence, you can import weapons, but you will not import everything.

    I think I will take the plunge sooner or later.

    Maybe switch out one of my counters, but I like all my counters still... LOL

    Just increase my exposure! I want some cash.... In case....

    ReplyDelete
  3. Hi Mike,

    I haven't done as thorough an analysis as you have or are trying to do. This is just too complex a company for a wee financial blogger like me.

    Its fantastic track record at paying out meaningful dividends year after year was enough for me to become an investor donkey years ago at $1.55 a share. Now, as interest rates seem ready to increase in the next 12 months, ST Engineering together with other cash rich companies are probably the ones that will do better.

    Too much analysis here could lead to paralysis. So, I just buy on pullbacks. ;p

    ReplyDelete
  4. Hi AK,

    Ya, that's right... But no blood on the street ....

    Actually if u read part 2, I didn't go into
    Nitty gritty as I am
    Convinced it has a strong business.

    Only problem like you say, a great price is missing for a great company. Think I will get it at fair price soon

    ReplyDelete
  5. at about 20 times earnings, do you think that ST engg is fairly priced or overvalued?

    ReplyDelete
  6. Fairly priced definitely...

    I am confidence of growth taking place at ST over the longer term.

    If ST cannot make it, it is very telling of te state of affairs in Singapore. I mean the business, not the price which can be low due to poor sentiments ...

    In fact, I am thinking it is going to expansion mode quite noticeably in current years

    ReplyDelete
  7. Btw Felix,

    Nice meeting you here at my little humble place.

    Your top three picks are hot, and if u are thinking if ST can behave like them, I don't think so, but if u ask me if ST can outlast them. I think it is a resounding yes

    ReplyDelete
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