ST Engineering – Buy on Downtrend?

While prices of most stocks have gone up, the stock price of ST Engineering has gone down recently. There has been discussions on ST Engineering on whether one should buy at current price of S$3.19, whether will the stock fall lower and if there is anything wrong with ST Engineering which resulted in the decline in share price. Based on technical analysis, Singapore Technologies Engineering is currently on a downtrend.

As I held 18% of ST Engineering in my stock portfolio, I decided to find out more. First, I looked at the revenue contribution from its various business sectors. As we can see, the revenue from Marine sector declined by 22% with Land Systems declined by 5%.

The decline is cushioned by revenue increase from the Aerospace, Electronics and Others sector.

Overall revenue for 9 months for 2017 in comparable with 9 months in 2016 with a slight increase of 1%. Net profit increased by 9% which I think is quite a good news for shareholders.

$’m	9M2017	9M2016	Change
Revenue	4,917	4,863	1%
Profit attributable to shareholders (Net Profit)	343.4	314.1	9%

From the above, I concluded that the company is doing well but still suffering from the ship building and ship repair weakness. There was also a one-off charge incurred for its China Specialty Vehicle business due to liquidation. I see the liquidation as healthy to the business as ST Engineering has the guts to “chop” off businesses or ventures that does not benefit the group. The other sectors are doing well with healthy contracts in the pipeline.

At the current price of S$3.19 and previous consistent dividend payouts of 15 cents for each financial year, this translates to a current dividend yield of 4.7%.

It will be great to nibble at this stock at S$3.00 which gives you a dividend yield of at least 5% but I will settle for any yield between 4.7% to 5% given that this is a blue chip company with good economic moat which has been delivering consistent dividend payouts for the past 5 years.

The share price can go lower which will be fantastic news for me to accumulate more of ST Engineering because the yield is more than 5%. However, we should take note not to catch a falling knife. We are never able to predict the lowest price.

(Read more: My Personal Analysis of ST Engineering )

Catalysts

Below are catalysts which I believe will improve ST Engineering’s earnings in the long term.

#1 Singapore Fifth Desalination Plant

ST Marine is part of a consortium (Tuas Power-Singapore Technologies Marine consortium (TP-STM)) that was named the preferred bidder by PUB to design, build, own and operate Singapore’s fifth desalination plant, the Jurong Island Desalination Plant. As the Preferred Bidder, TP-STM will form a concession company to enter into a Water Purchase Agreement (WPA) with PUB by October 2017.

The other two applicants are TP-STM consortium, Keppel Infrastructure Holdings and Sembcorp Utilities – SUEZ International Consortium.

#2 Investment in Cyber Security

The corporate venture capital unit invested S$7.8 million in Janus Technologies, Inc., a US-based endpoint cyber security provider. The stake was consider minor, probably Janus Technologies was a start up. With the collaboration, ST Electronics launched the Black Computer L100, an industry-first hardware-based cyber security solution.

However, cyber security business is still at its infant stage and I am not sure if the trend will persist.