The earning reporting season is here again.
It is with some irony that I am writing this.
We always have a list of reasons to buy and sell, and why we think a stock has room to move upwards or downwards.
It happened I am wrong on the nitty gritty but right on the bigger reasons, core reasons.
Let's look at the reasons that I got right.
1) I was looking at both SIA engineering and ST engineering and deciding which to get. SIA engineering actually give better yield. I got ST engineering because it has better FCF, and also because I felt it will be less volatile as it is exposed to four sectors, with the defence/ electronics segment being more defensive. Indeed, when aerospace MRO segment turn, both SIA engineering and ST engineering aerospace segment are not spare, but ST engineering has some buffer.
As for the things I got it wrong, they are plenty.
1) I expect aerospace and electronics to deliver the growth for ST engineering, for this quarter, only electronics deliver, and I believe it is due to its large scale system group. Aerospace is actually a drag on results.
2) I initiate a position Sembcorp Industries today at $4.6. I have been watching it since it go below $5. I always thought that the marine will be the reason for my waiting to be not in vain. Look, lower oil price, higher supply of rigs, keener competition, etc. I however think that utilities is the Gem and the Urban development to be the grower.
Ironically, while the weak oil prices has been putting pressure on Sembcorp, it is the 20% fall in utilities Net profits that let Sembcorp shoot to the downside. If you ask me, it is a overshooting to the downside. For my previous analysis, read here
The 20% is largely due to one-off items such as IPO gain and impairment. Take away the one-off item, market should not react in this manner. UK operations turning in profits again mean the impairment should be over, Singapore Utility NP actually show a QoQ improvement. China, is the biggest spanner. But as I said again, all these reasons/ analysis are the nitty gritty which I could easily get wrong or right.
Reasons that allow one to sleep soundly are core reasons
I might get many reasons wrong, but if Sembcorp if to say drop another 10-15%, I think I will accumulate, the same goes for ST engineering. I think the long term moat is still intact, and these poor quarterly results provide opportunities for entry.
The fact that they pay decent dividends also provide pain killers during the long wait for recovery.
It is for this reason, that I finally decided to take yet another switch. I take profits off the table of APTT. It has been a good ride, and will most probably continue to be good. But compare to Sembcorp Industries with negligible debt, lower payout ratio, and clear longer term growth drivers, I decided that at about 10xPE, it is Ok to take the plunge. Marine will be clear over the next 2 years, just like APTT. In fact, it is OK if Marine has lesser orders if the whole sector is having lesser orders, better to have smoother cyclical than a Feast and Famine type of cyclical.
Interest rate raise? While APTT as a trust will be affected, the impact on Sembcorp or ST engineering will be much nuance.