Would Benjamin Graham Buy Singapore Technologies Engineering Limited?

We call it ST Engineering. But its proper name is Singapore Technologies Engineering Limited (SGX: S63). It is an integrated engineering business involved in the aerospace, electronics, military contracting and marine sectors. With a market value of S$11b, it is one of Singapore’s largest listed companies.

The company trades at around 20 times earnings which is more than the Price-to-Earnings (P/E) ratio for the market as a whole. That said, the earnings yield of 5% is twice the risk-free rate of, say, the 10-year US Treasury. The dividend yield is around 4%.

Such generous yields are afforded to investors thanks to ST Engineering’s strong net income: Last year ST Engineering boasted net income of around S$600m. This year could prove even more fruitful after the company’s electronic unit recently won new contracts worth over S$500 million for the third quarter.

The risks involved in investing in ST Engineering could appear to be minimal, further tempting value investors like Benjamin Graham. With total debt standing at around half of the book value of the company and comparable to the net current asset value the company would appear to be in good financial health.

Even a slightly below ideal current ratio of 1.6 may not be enough to discourage a value investor taking into account other factors. But as always, it is very rare to find the ideal value company, namely, one that ticks every last box required by a true value investor.

Where ST Engineering might let itself down is in its price. Trading at almost five times its book value, it could seem dear to some. That said, historically it has been valued as much as nine times and as low as three times its book value.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Adam Kuo doesn’t own shares in any companies mentioned.