ST Engineering - A Look at the Future

ST Engineering (S63) has been a part of my dividend portfolio for a while, ever since I picked it up early last year. I have a tendency to re-evaluate my dividend stocks/REITs every year or so - I want to see if I should take profit and park my money somewhere else, or if I should continue having them in my portfolio.

ST Engineering closed at 3.67 on Tuesday, and dividends are upcoming in April. The company, as a whole, did well in 2016. FY16 revenue improved by 6%, from 6.33 billion to 6.68 billion, with the main contribution coming from their Aerospace and Electronics sectors. The Aerospace sector encountered more than S$2 billion worth of new contracts, and their business is well diversified overseas. The Electronics sector the probably provides the most optimism, as Singapore moves towards the dream of a Smart Nation. S$2.33 billion of new contracts were announced, and new R&D methods have been put in place, one of which is the launching of the ST Electronics-SUTD Cyber Security Lab. ST's Marine sector delivered less revenue due to weaker shipbuilding efforts, and ST's Land sector dropped due to divestment of their GJK and JHK subsidiaries, but the drop of $208 million from two sectors was buffered by the overall gain across all sectors.

At the close of 2016, ST Engineering had an orderbook of S$3.7 billion expected to be delivered in 2017.

Source: ST Engineering Website

For the same reason that I invested in Keppel DC Reit, the Singaporean shift towards a Smart Nation is keeping me invested in ST Engineering. ST Engineering is currently Singapore's main link to technology for the Smart Nation project. As progression is made towards a Smart Nation, I expect cyber security and communications technology to rise in importance, which means more contracts and development opportunities for ST. Assuming another 10% growth in revenue for FY2017, the Electronics sector would be poised to bring in more than S$2 billion.

With good FY2016 results and opportunities for growth around the corner, I have an optimistic view on ST Engineering, and I will be holding onto this stock for the coming year. It might be a while before it regains the $4+ levels of 2013, but it still remains a solid blue chip stock with decent growth potential. I might consider picking up more if the price manages to retrace to the 3.40-3.50 level - it is currently too expensive right now.

Until next time.


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