The Singapore stock market has had a rough year so far with the local market benchmark, the Strait Times Index (SGX: ^STI), down by 9.1% from the start of the year to the end of November. But, some stocks have bucked the trend.
Singapore Technologies Engineering Ltd (SGX: S63) is an example. ST Engineering’s share price rose by 13.7% from S$3.12 at the start of January 2018 to S$3.55 on 30 November 2018. With the company outperforming the Straits Times Index by a wide margin, let’s have a look at three of its valuation metrics to see if it’s still a buy at its current share price of S$3.50. The three metrics I’ll be looking at are the price-to-earnings (PE) ratio, the price-to-book (PB) ratio, and dividend yield.
ST Engineering is an integrated engineering group with a wide variety of business interests in over 100 countries. It has four business segments: Aerospace; Electronics; Land Systems; and Marine.
ST Engineering is also one of the 30 companies that make up the Straits Times Index, and it has a market capitalization of S$11.1 billion.
The valuation numbers
With ST Engineering’s trailing diluted earnings per share of S$0.174, it has a PE ratio of 20.1 at its current share price of S$3.50. In contrast, the SDPR STI ETF (SGX: ES3), an exchange-traded fund which mimics the fundamentals of the Straits Times Index, has a much lower PE ratio of 11.35. But if we look at ST Engineering’s PE ratio over the past five years – shown in the chart below – we can see that the engineering conglomerate’s current PE ratio of 20.1 does not appear to be high. In fact, the conglomerate’s average PE ratio over the past five years is 20.4.
Source: S&P Global Market Intelligence
Coming to the PB ratio, ST Engineering has a book value per share of S$0.68, which gives rise to a PB ratio of 5.1 at the current share price. This ratio is much higher than the SPDR STI ETF’s PB ratio of 1.1. At first glance, it would appear again that ST Engineering is significantly more expensive than the market. But, investors should note that ST Engineering’s business is more service-based, which means the company is asset-light and thus has a low book value.
As for the dividend yield, this is where ST Engineering shines when compared to the market (4.3% versus 3.5%). The engineering conglomerate has a trailing dividend of S$0.15 per share, which is the same as its 2017 dividend. My colleague, Sudhan P, had recently taken a look at whether ST Engineering can sustain its 2017 dividend, and his answer is yes.
Rounding it up
To sum up: (1) ST Engineering has outperformed the market by a mile in the first 11 months of 2018; (2) despite its share price gain, the company currently still has a market-beating dividend yield and a PE ratio that’s in line with the average over the past five years; and (3) the conglomerate also has a good reason for sporting a significantly higher PB ratio as it’s a service-based business. All three points suggest that ST Engineering is at least worth a deeper look by investors who are looking for bargains.
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The Motley Fool Singapore contributor Esjay contributed to this article. Esjay does not own shares in any companies mentioned.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore writer Chong Ser Jing does not own shares in any companies mentioned.