Singapore Technologies Engineering Ltd (SGX: S63) is a large engineering conglomerate with four main business segments, namely, Aerospace, Electronics, Land Systems, and Marine.
Since the beginning of 2018, the company’s stock price has increased by 7.3% to S$3.51 currently. What may have caused this?
Reasons for a gain
There can be many reasons behind a stock’s price gain. But, the reasons can generally be classified as business-performance-related, or investor-sentiment-related.
The former deals with how a stock’s business has performed or is expected to perform. And in terms of business performance, one of the really important numbers would be the stock’s profits.
Meanwhile, the latter is about the overall mood of market participants – are investors more greedy than fearful, more pessimistic than optimistic et cetera? In general, negative emotions (fear and pessimism) tend to drag down the prices of stocks while positive emotions (greed and optimism) tend to push up stock prices.
The case with ST Engineering
In ST Engineering’s case, I believe it’s the former at work. The table below shows a condensed income statement from the conglomerate’s latest earnings update for 2017:
Source: ST Engineering earnings presentation
We can see that despite bringing in flattish revenue, ST Engineering’s net profit for 2017 was up by 6%. The EBIT (earnings before interest and taxes) performance was even stronger, with growth of 17%.
In addition, the conglomerate ended 2017 with an order book S$13.2 billion, 14% higher than at end-2016. Of the S$13.2 billion in orders, S$3.8 billion is expected to be delivered in 2018. ST Engineering’s balance sheet also remained strong at the end of 2017, with a net cash position of S$0.24 billion.
So, the company’s positive stock price performance in 2018 has mostly been in line with the improvements in its business seen in 2017.
Going forward, ST Engineering expects growth in the next few years from its Aerospace, Electronics, and Land Systems segments. If healthy growth does materialise, the company’s stock price is likely to deliver positive returns as well.
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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.