MENU

3 Wise Views on Singapore Technologies Engineering Ltd

Three wise men were blindfolded and led one at a time into a room where an elephant stood. Each was asked to discern what was in the room without removing his blindfold.

The first, upon touching the elephant’s trunk, concluded a “snake” was in the room. The second, upon contacting a leg, concluded a “tree” was in the room. The third, upon grasping the tail, concluded a “rope” was in the room. All were surprised to discover the elephant once their blindfolds were removed.

— old Indian fable

You may have heard this old fable before. The three blindfolded wise men were not able to make a good guess of the complete picture (in this case, an elephant). It can be the same with investing.

For any potential investment, our own view may be limited, and we may miss some major points. We could always do with more intelligent and Foolish perspectives.

To demonstrate, let’s use engineering conglomerate Singapore Technologies Engineering Ltd  (SGX: S63) as an example. As a conglomerate, ST Engineering has stakes in diverse industries including Aerospace, Electronics, Land Systems, and Marine. You can read more about ST Engineering in here and its various subsidiaries here and here.

With this company, I would like to share three possible views, from three differing investor personalities no less. They are the value investor, the income investor, and the growth investor.

The value investor’s view        

At its current price of $3.27, ST Engineering carries a trailing price-to-earnings (PE) ratio of 19.4. The value investor may notice that ST Engineering’s PE ratio is higher than the SPDR STI ETF’s (SGX: ES3) selfsame figure of 13.4; the SPDR STI ETF is a proxy for Singapore’s market barometer, the Straits Times Index  (SGX: ^STI).

Furthermore, the price-to-book (PB) ratio for ST Engineering stands at a hefty 4.6 – that’s more than three times as expensive as the broader market (the SPDR STI ETF has a PB of 1.28).

The valuations that ST Engineering carries may thus not excite the consummate value investor.

The income investor’s view

ST Engineering currently offers a tasty 4.9% trailing dividend yield and over the past ten years, the engineering conglomerate’s dividends have also been generally stable. These traits may be enough to pique the interest of the income investor.

Financial Year Dividend Per Share (Singapore cents)
2004 12.39 cents
2005 13.60 cents
2006 15.11 cents
2007 16.88 cents
2008 15.80 cents
2009 13.28 cents
2010 14.55 cents
2011 15.50 cents
2012 16.80 cents
2013 15.00 cents
2014 15.00 cents

Source: ST Engineering’s website

The conglomerate’s consistency in generating free cash flow (see chart below; note how the operating cash flow has been higher than the capital expenditures) over the past decade as well as the diversity of its business segments might also be plus points in the eyes of the income investor.

ST Engineering OCF FCF

Source: S&P Capital IQ; ST Engineering’s Earnings Report

All that said, the lack of growth in ST Engineering’s dividends may prompt the income investor to ask for a larger margin of safety.

The growth investor’s view

The last type of investor – the growth investor – might be a little melancholic if he or she’s looking up ST Engineering’s growth prospects.

Business Segment ST Engineering

Source: ST Engineering’s’ Earnings Report

The two largest sectors for the firm – the aerospace sector and the electronics sector – have seen their revenues grow by merely 2% and 3.3% per year, respectively, since 2009. ST Engineering’s smaller segments are also not able to demonstrate much growth either given that the engineering conglomerate’s total revenue has stepped up by just 3.6% per year over the same timeframe.

With the lack of strong historical growth and the company’s high valuation (as mentioned earlier), even the adventurous growth investor might want to proceed with caution.

Foolish summary

So, there you have it. Three quick perspectives from three different investor personalities looking at the same company. Thinking as different investor personalities and coming up with different views can be a useful exercise for us.

Collectively, the differing views may be worth much more than the sum of their parts.

So, do you – Foolish reader – have another company of interest in mind? Why not give the differing views approach a try yourself and then share it with us? We all may become better investors from sharing our motley views.

For more (free!) stock analyses and investing tips, sign up here for your FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock SingaporeIt will teach you how you can grow your wealth in the years ahead.

Like us on Facebook to follow our latest hot articles.

The Motley Fool's purpose is to help the world invest, better.

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