Wednesday, July 10, 2024

Sold ST Engineering


The share price of ST Engineering (S63.SI) has surged in recent months on the back of strong Q1 2024 financial results when it posted an 18.1% revenue to $2.7 billion and a 20% rise in H2 profit to $306 million. In June 2024, ST Engineering also announced over $100 million worth of ammunition orders from Europe and development of a fourth new data centre in Jurong, adding 7.5 MW of capacity to its portfolio. Most recently yesterday, they signed a 2 year agreement with Safran Aircraft Engines for engine repair support.

ST Engineering has a strong proven track record of being a resilient, defensive conglomerate business which rewards shareholders consistently with 4 cent dividend per share quarterly. However, I decided to sell it off today as its share price hit new 52 week high.

I believe ST Engineering is now fairly valued or slightly over valued. Its yield has been compressed to just 3.6% based on $0.16 dividend at $4.40 share price. Its share price is also at the resistance level hence may retrace to the next level of support if it fails to strongly cross above the $4.40 resistance level. Its price to book value of $0.79 is 5.4 times which is rather high. 

I wanted to lock in the profits of these ST Engineering shares which I bought in 2017 at just $3.22. Inclusive of the cumulative dividends collected which is around $5k, the total profits amount to around $10k, which is more than 60% of the $15k capital invested, too enticing to not take off the table.

A key concern of ST Engineering is its heavy reliance on debts to fund its growth and operations. At a current total debt level of $7.3 billion and short term debt of $2.5 billion, its debt to equity ratio is at >2 , which may erode into its future profitability in today's high interest rate environment. 

While ST Engineering shall continue to do well in the next couple of years, it may struggle to maintain the $0.16 dividend at the expense of shareholders in the long run.

I have the funds out of ST Engineering and may consider buying back should its share price fall below $3.80 in future.

Thanks for reading.

With love & peace,

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