ST Engineering – Why I Am Not Selling

Smart City

ST Engineering makes up 12.6% of my stock portfolio. If you are not familiar with this company, it derives its revenue from four key business segments: Aerospace, Electronics, Land Systems and Marine.

After ST Engineering has held its Annual General Meeting on 15th May 2020, the share price of ST Engineering has started to decline as investors started their sell off because of the impact of the COVID-19 pandemic to ST Engineering’s businesses.

First, let us understand how the COVID-19 pandemic has impacted ST Engineering. Second, how the company tries to mitigate these factors. The last is what the company is doing to keep investor’s confidence?

1. How COVID-19 Pandemic Has Impacted ST Engineering?

The COVID-19 pandemic has impacted ST Engineering in three areas: reduction in customer demand, supply chain and workforce disruptions. ST Engineering expects the Aerospace and Electronics sectors to experience more impact than Land Systems and Marine sectors. Land Systems and Marine have a higher portion of defence related projects, which collectively have provided revenue stability.

In the Aerospace sector, we have read about commercial planes being grounded and airport closures. ST engineering expects lower demand for airframe and engine and component MRO (maintenance, repair and operations). The production manufacturing timeline for original Equipment (OE), largely the engine nacelle manufacturing and composite floor panel manufacturing needs to be shifted to follow its customers timeline. The income stream from military customers continues to be steady.

In the Electronics sector, ST Engineering experienced deferments in some projects and tenders previously launched are now being placed on hold. These are due to travel and movement restrictions imposed in the countries they serve.

In the Land Systems sector, the defence related projects continues to provide revenue stability. Similarly to projects in the electronics sector, projects in its commercial business are deferred.

In the Marine sector, ST Engineering’s yards in Singapore and the U.S. are still operating, albeit on a reduced scale in Singapore mainly due to the workforce disruption.

2. Mitigation Measures Taken

ST Engineering has a diversified income streams from different business sectors and geographies. The income is further differentiated between customers from the commercial and military defence. As mentioned previously, the income from the military defence customers remains steady.

The directors have taken a cut in their director’s fees. As of 1st May 2020, the President and CEO will reduce his salary by 10%, while the senior management team will reduce their salaries by percentages ranging between 5% and 10%.

The group has received also support from various government aids and stimulus packages.

For the nine months from April to December 2020, the group expects to recognise $4.5b from the order book of $16.3b as of 31 March 2020, after delivery for the first quarter.

ST Engineering COVID-19 Mitigation

What is the company doing to keep investor’s confidence?

It is heartening to know that for the past seven years, ST Engineering has been consistently paying out 15 cents per share. This is also the reason why I am not selling away. The group has assured they have a strong balance sheet to sustain long-term growth and they will want to continue rewarding its shareholders by creating long-term shareholders’ value.

My Sweet Retirement – How Much Are You Paying For It?

Iceberg Illusion of A Sweet Retirement

When I first started My Sweet Retirement, I wrote about The Path to Financial Freedom which is about the underlying hard work and dedication to achieve our own determined success.

All of us define our own success differently. Some people define success as climbing to the top of the corporate ladder. Entrepreneurs define success as being their own boss and not having to work for others. For a few financial bloggers I knew, they often define achieve FIRE (Financial Independence, Retire Early) as our success.

The recent post “How Much Are You Paying For Financial Independence?” written by Brian has inspired me to reflect on the effort and hardship that I have put in towards my vision of a sweet retirement.

My past experience of being retrenched without any compensation has sparked me to scrimp, save and invest hard over the years. Prior to being retrenched, I have no concept of building an emergency funds for rainy days as I never expect retrenchment to fall onto me. During the period when I was jobless, I saw my savings falling as there are still expenses to pay such as utilities bills and living expenses.

During the days when I was jobless, I limited my spending on meals to S$2.50 per meal. After sending hundred of resumes, I found a job after three months. The job was not ideal and working hours was long, as much as 20 hours per day. Most of the time, I left office at 4 am in the morning. I quit after 6 months as my body could no longer sustain the long working hours.

The COVID-19 pandemic has reconfirmed that I have embarked on the right path to my sweet retirement. You may have read from the news that almost 800 and more businesses closed down during the COVID-19 period. Businesses could not operate because of “Circuit Breaker” measures and only essential services could operate. Companies had to lay off employees and they are unable to foresee when they are allowed to open again. I am ready this time as I have my emergency fund ready in Singapore Savings Bonds in the event I am retrenched.

You probably thought that I am working at home and my working hours are shorter than normal. The sad truth is that my company is in the business classified as essential service and I have to work longer hours during this period. I have to work 12 hours night shift on certain days. This is also probably why I dislike work because it takes away time from myself with my family. The tiredness build up from the long working hours made me reiterate to myself not to lose focus and continue my routine of saving, spending prudently and investing for more passive income.

During this difficult period, I continue to save part of my monthly salary. As the interest rates of Singapore Savings Bond has fallen drastically, there are alternative options such as Singlife Account and CIMB FastSaver which both offer higher interest rates.

There is a price to pay for a sweet retirement and I am paying for it now.

How are you working towards your sweet retirement?

Frasers Centrepoint Trust 2Q2020 Financial Results

Waterway Point

I have written about My Personal Analysis of Frasers Centrepoint Trust back in the year 2017. Till date, Frasers Centrepoint Trust has 7 suburban malls in its portfolio. They are Causeway Point, North Point, Waterway Point, Changi City Point, Bedok Point, Yew Tee Point and Anchor Point. Frasers Centrepoint Trust also held 31.17% of the units in Hektar Real Estate Investment Trust (“H-REIT”).

What is the impact of COVID-19 pandemic to Frasers Centrepoint Trust? How does Frasers Centrepoint Trust fare against Capitaland Mall Trust? Let us take a look at its latest financial results below.

On 23rd April 2020, Frasers Centrepoint Trust has released their 2Q2020 financial results. Gross revenue improved by 0.9% to S$50.2 million. However, Net Property Income (“NPI”) fell 1.3% to S$36.0 million.

Distributable income increased by 25.0% to S$36.0 million. As Frasers Centrepoint Trust decided to retain 50% of the distributable income to preserve financial flexibility in current time of uncertainty, the final distributable income declined by 38.3% to S$18.0 million. A distribution per unit (“DPU”) of 1.61 cents was declared which is a declined of 48.7% as compared to 2Q2019.

2Q2020 Financial Results

2Q2020
(S$’000)
2Q2019
(S$’000)
YoY(%)
Gross Revenue50,16849,7330.9%
Net Property Income35,96436,444(1.3%)
Distributable Amount (Before Capital Retention)36,00228,80825.0%
Distributable Amount (After Capital Retention)18,00029,158(38.3%)
Distribution Per Unit (“DPU”) (cents)1.61031.37(48.7%)

Occupancy

As of 31st March 2020, the overall portfolio occupancy is 96.1%. With the COVID-19 temporary measures in place, landlords will not be able to terminate the lease of tenants or claim back the rented premises if the tenant is unable to pay the rent during the relief period of 6 months.

The manager of Frasers Centrepoint Trust had passed on the full property tax rebate to qualifying tenants. Tenants can utilize their cash security deposits to offset one month’s rental. Under the S$45m Tenant Support Package (“TSP”) enhancement, one month of rental rebate will be provided to tenants in targeted manner, prioritised by their needs and circumstances. There will also be one month rental waiver to all entertainment, education and tuition centre tenants affected by the mandatory closure orders from 26 March 2020 to 30 April 2020.

Debt

As of 31st March 2020, gearing ratio stood at 37.4%.

Current Dividend Yield

Based on the full year FY19 distribution of 12.07 cents and current share price of S$1.99, this translates to current dividend yield of 6.07%.

Summary

The current dividend yield of 6.07% is definitely attractive. As we are coming to the end of “Circuit Breaker”, more shops are opening up. This should bring back some shoppers.

However, as we are still in the midst of the COVID-19 pandemic, I will advice to buy in small lots because nobody can foresee the depth of the financial impact created by the COVID-19 pandemic, especially to the retail segment.

Similarly like Capitaland Mall Trust, I shall continue to monitor the financial results in the upcoming quarters.