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.
Hi sillyinvestor,
ReplyDeleteNot surprised to see aerospace being a drag on earnings for ST Eng when you look at the latest results of SIA Eng.
Utilities is getting more competitive but earnings for that section appear stable. I added another lot today. ;p
Cool. You are the 6 th person I know that are adding today.
DeleteHope the company do some share buyback, and make the shortists panic and buy back way up to cover position. It's a long fall la., so they will still make money.
Then opec decide to cut supply to lend support to oil price. Shale gas alone should not cause oil price to go below 75, since it will not be really profitable then.
Let's hope we are near the bottom in the short term
Wah we have a lot of onboard investors for sembcorp today. Looks like the shortist make a killing today shorting SCI. Lets see when the price is consolidating with fair volume. I wanted to add today but the tiger is still out there. Ill wait in the woods having been bitten on one leg.
ReplyDeleteHi B,
DeleteIndeed, beside those bloggers that we know, forummers at valuebuddies are buying too, which makes me wonder who are selling?
The shortists must be having hell of a good time.
Btw, u mentioned at the comments section of your blog that the fall could be due to expectation of growth not materializing.
But SEmbcorp do not have a high PE to start with, so I hope the disappointment will end soon.
Extract from 2013 AR: Shareholder Information - Temasek 49.5%, Institutional 36.5%, Retail 14%. Geographical: N. America 15% and Europe 13%.
DeletePossible those institutional shareholders from NA & EU are selling amidst weak WTI crude oil price?
Hi Boon Chin,
DeleteNice to see u here, I wouldn't want to bet against the institutional players, but if it is them, we will know soon enough with the Announcements.
Cheers... US employment Is doing fine, I hope their wage improve too, it's ok it interešt raise as long as it is slow and steady ...
Hi Sillyinvestor
DeleteThe PE is not over demanding but if we see the past 10 years they hvnt really gone through the roof either. So either it will materialises one day and we hv a high pe otherwise it probably stay in the safe zone for consolidation.
Hi B,
DeleteIf it not too much to ask, I didn't actually do the PE range thingy for sembcorp. Can u tell me what is the range for the past 10 years? What is the most frequent average?
Thank you!
My guess is 8 - 15, with 11-13 the usual av?
DeleteHi Si,
ReplyDeleteI just looked at the chart and Q at 4.54 for Sci. Just a cursory look at the financial only.. I like what I see, low debts, high roe, stable earrings (more or less). Shld fit into my same outlook for St eng, which is defensive. No need to think so much for this conglomerate.
Next level, 4.42. Watch your front!
LP,
DeleteI sniper, I hope the fall do not come so fast...
Maybe December ?? Bonus comjng LOL
as mr market becomes depressed and continues quoting insane prices, its good that we can take advantage of the low prices.
Deletevery good read, keep it up~!
ReplyDeleteI'm vested in semb corp industries too, have added more today and will definitely add more if it continues to decline.
I estimate SCI to make around 42-44 cents per share this year and 45-50 cents in FY15, so at 10 times earnings with a dividend yield of 3-4% (15-20 cents payout) its pretty attractive.
while many may continue to wait for lower prices, I'm not a good market timer. I think that at the current level the valuations are cheap with a decent margin of safety.
In the short term SCI may continue to be volatile due to its correlation with oil prices, however its long term fundamentals are definitely solid. Investors looking to join the party should be prepared to hold for the long haul.
All the best, cheers ^^
IMHO,
DeleteThe biggest risk is China and marine sector. But all business have risk.
I suspect rotation out of utilities are going to continue.
Deletetime will tell.
Hi SMK,
DeleteI will be more worried about the project delays that hot money moving out of a certain theme.
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