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Singapore Technologies Engineering – A Quick And Simple Overview Of The Segments’ Profitability

Singapore Technologies Engineering Ltd (SGX: S63) is a conglomerate with business interest in various sectors. It has 23,000 employees worldwide, and over 100 subsidiaries and associated companies in 46 cities across 24 countries.

In an earlier article, we looked at the four different ways that ST Engineering makes money, namely, through Aerospace, Electronics, Land Systems and Marine.

Given that each business segment is different, it might be useful for us to have an overview of each division’s profitability.

We can do that by looking at the return on equity (ROE).

Analysis of profitability of business segments:

S$ million Aerospace Electronics Land Marine
Profit attributable to shareholders 227 163 56 86
Equity 766 224 263 192
Return on equity (ROE) 30% 73% 21% 45%
Position 3 1 4 2

Source annual report 2015

The Electronics business has the highest return, follow by Marine, Aerospace and Land systems.

Electronics has been the fastest-growing segment, expanding at 8% in 2015. This is beneficial to shareholders, since the most profitable business segment is also growing.

One positive note about ST Engineering is that, despite having four different, there are no obvious “weak links” within the conglomerate.

That’s because the business segments have above average ROEs of more than 20%.

By comparison, the median return on equity for the 30 companies that make up the Straits Times Index (SGX: ^STI) is just 8.8%, according to data from S&P Global Market Intelligence.

In summary, there are two key takeaways.

Firstly, ST Engineering is made up of four different businesses, each earning ROE that are higher than he median.

Secondly, within that group, the electronic segment stands out as the best performer with ROE of 73%.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.