Listed as one of the Straits Times Index (STI) constituents, Singapore Technologies (ST) Engineering Ltd (SGX: S63) commands a whopping S$8.16 billion as at end-Sep 2014 with a market capitalization S$10.4 billion. This is currently 5x the Group’s total book value.
Founded in 1997, ST Engineering is one of Asia’s largest defence and engineering conglomerates which is split into 5 main business segments, namely:
Similar to SIA Engineering (SGX: S59), Singapore Technologies Aerospace is involved in the business of airframe, component and engine maintenance, repair and overhaul (MRO) service provider. As one of the world’s largest MRO service provider, ST Aerospace services major aircraft clients including the Republic of Singapore Air Force. The business segment is the largest contributor of profitability, accounting 31.5% of the Group’s total revenue with a FY2013 net profit of S$260 million.
Established in 1969, ST Electronics is a leading Information Communications Technologies (ICT) System provider in the region. The business’s core competency lies in its design, development and integration of advanced electronics systems for commercial, industrial, defence, and public services globally. The Electronics business also offers rail electronics solutions which have been utilized in Canada by Merolniux Air Rail Link Spul Line; the US by the Washington Metro Transit Authority and San Fransico’s Bay Ara Rapid Transit. The Group continues to expand its geographical expansion with new contracts in China, Malaysia, Thailand and Taiwan. Currently, this business segment contributes 25% of total revenue.
This business segment should have some familiarity for many Singaporean males. Land Systems is the specialty vehicles arm of ST Engineering, manufacturing products for defense science and homeland security markets. Some of the products designed and manufactured include the Light Strike Vehicle MK II, the 120 mm Super Rapid Advanced Mortar System (SRAM) and customized ambulance vehicles. Land Systems revenue segment contributed 22% to the Group’s total turnover in FY2013, contributing 16% to the Group’s net profit over the same period.
The Group also specializes in turnkey shipbuilding, ship conversion and ship repair services to a global customer base in the naval and commercial markets. Some of these shipbuilding includes the 1018 TEU feeder container vessels, 45M Coast Guard Patrol Vessel and the 45M Missile Attack Craft.
ST Engineering’s 5-year average ROE stood at 29.3% over 2009-2013 and has grown its net asset value (NAV) per share from S$0.52 to S$0.68. In addition, the Group has consistently returned cash to shareholders in the form of dividends at an average of S$0.15 per share during 2009-2013. Average dividend yield has amounted to approximately 4.6% over the same period, pretty decent for a large conglomerate.
Value in Action
With current P/E ratio at 18.6x and a P/B ratio of 5.3x after a 26% correction from a high share price of S$4.50/share in the mid of 2013, could there be some value in this stock at the moment?
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All views and opinions articulated in the article were expressed in Willie’s personal capacity and do not in any way represent those of his employer and other related entities. Willie does not own any shares in the companies mentioned above.