ST Engineering: Might not be as cheap as you think
Readers from SGFunds would have notice that in one of the topics i did my usual rant on things that gets me frustrated.
I am vested in ST Engineering and not in the usual way since I have company units in there. And pretty much this would explain a huge portion of why i am so pissed off with the recent share price fall.
Units are link to share price and its a bit like DCA into a fund but with abit of a difference. One, its more like DCA into a share and much of whether DCA works is whether it eventually ends UP or DOWN. it can only work if at the end of the story it is a happy ending. Else its hard for you to get anything meaningful out of it.
From a high of 3.94 it plunge to the current 2.62. Thats a total of 33% fall.
33 PERCENT.
You know what got me pissed is not losing money. I lost 90% on my warrants and i don’t get as emotional then this.
The reason why i am so pissed is that i never would have thought that a blue chip company with a growing business and a solid balance sheet and known for its defensive nature can get wacked for 33%.
Alot of people tell me I am quite blessed to hold such a company’s shares or unit and I don’t fault them for that. Its afterall a blue chip and its in a business that will always be a cornerstone in both Singapore and Aircraft maintenance. On an average it have been yielding at 4% which is not bad if inflation remains low.
I trimmed my holdings one time last year, reason being, much of my networth now links to this company that I should reallocate it to reduce the one-company risk. That turned out to be a good decision now. Having said that, perhaps i am not shrewd enough to divest some more this year as now i realise at least 8% of my portfolio is in this company. Thats the largest single stock i own.
My Lesson Learn, though some of it i always practice in the other stocks i owned:
- There is no fucking thing called defensive. Even the most defensive thing has a value to it and its either fair, cheap or overvalued depending on the stages of growth it is in. In the case of ST Engineering, I erred in not valuing it as actively as my other holdings. It would seem that alot of the share price at 3.94 would depend on the continual growth of new contracts at the 4 divisions. if only i had done what i did for my other holdings.
- From a risk management perspective, company shares or units can be a double edge sword. As a insider, you know better than others how well its doing and so you should react better. Thus, some would argue that you can watch that basket better and so you can put all your eggs into that basket. I think in these modern times, its not safe to do that, if you get retrenched from this company when the share price is down (like now), you suffer twice, once for the loss of disposable income and second from having to force liquidate your company shares. Of course to remedy that, you can always purchase the shares from the open market if you think it has a possibility it can return to the height of that high share price.
Valuation
So is this thing cheap now? I relook some of the numbers, and based on last year’s full year result i don’t think so.
- The dividend yield is 6%. Looks good.But that is the supposed inflation rate as well. Its barely keeping up with it.
- EV/EBITDA is 19 times. What does this mean? The current equity + debt is almost worth 19 times the current operating cashflow. its nothing bad really. But it might also mean that its NOT CHEAP. I highlighted orient century previously as having 2.5 times EV/EBITDA so tell me which one you would buy.
- PTB is 3 times. If you are paying for stability and predictable share price and dividends then 3 times is valid. The drop from 4 bucks to this price makes me wonder why the heck do i pay so high above book value for the “defensiveness”
- based on last years operating cashflow, it’s yield is around 5.35%. Thats much less than the 6.++% its currently yielding at now.
- DCF time! using a WACC of 10% and a growth rate of 3% the current value represents 73% of share price. meaning there is still the 27% growth factor in there.
With that in mind, i don’t think it is excessively cheap. the only reason to buy it now is that technically i think its due for a rebound based on RSI and ADX reading.
OK RANT OVER.
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