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ST Engineering: A letter from a reader.

Wednesday, April 15, 2015

We are supposed to be emotionless as investors. This is not easy to achieve. Well, at least I am still working on it. I am a poor candidate for a ninja, er, I mean, investor.


Dear AK,

I went to your last seminar because of a friend. I have been investing for a year but I never make money. After your seminar and reading your blog, I understand why my friend said you are good.


At the seminar, you and the audience discussed ST engineering. I was inspired by your own story about your first lot at $1.55 almost 20 years ago and holding till now. I was excited that the stock pays you every year.

Some people said they know the business and also bought the stock. I remember one guy said he keeps buying every year. You gave me confidence when you said you bought again at around $3.30 and $3.40. You said it was not expensive. So, I bought that week.


Today, it is $3.77. I am very happy. Don't worry. I know you will say bu yao hai wo. You said to understand price and value. I have been reading your old blog posts. I know price can go lower in crisis. But I just feel happy. So, many thanks. You are a good person.


Yours sincerely,

W


I think we discussed STE at the 3rd "Evening with AK and friends"





Hi W,

Your last paragraph saved me from having to write you an email on the difference between price and value. Sounds like you have emerged from a fog and are beginning to plot your route in the stock market as an income investor.

It is, of course, normal to feel happy that our investments are doing well. However, please be mentally prepared that we might see prices sink one day. Knowing something could happen and being prepared for it are two different things. Apart from being mentally prepared, we should be financially prepared as well. So, have a war chest ready too.


I am glad that you have found my blog useful and that one of my chit chat sessions (not seminars) started you on your journey as an investor for income. Stay the course and, I believe, you will do well enough over time. Gambatte!

Best wishes,

AK

Related posts:
1. Seven steps to creating passive income.
2. 2014 full year income from non-REITs.
3. The mystical art of wealth accumulation.

24 comments:

yeh said...

Hi Ak..my first buy for STE is 3.88
Then 3.7
3.6
3.5
3.26

Well. Now i have 18 lot. But my average price is slightly a bit higher 3.68.
Anyway it is breakeven and I have collected 1.5 years dividend.

So something to feel happy too:)

Btw, are you selling STE and semb corp?

AK71 said...

Hi yeh,

I have been holding STE since the time it was $1.55 a share. Don't know when I would sell it. ;p

As for SCI, if I felt that $5.00 a share was fair, would I sell it now? Hmmm... I don't know. ;)

Adrian Phoon said...

Hi AK,

With reference to this post example, how do we know that we can consistently buy in more position? What are the follow up actions required so that this shortlisted company has not been a mistaken investment?

Thank you.
Phoon

AK71 said...

Hi Adrian,

I think you are referring to what the reader said about a member of the audience consistently buying more of ST Engineering, year after year.

This is probably a good example of someone being in his circle of competence. That member of the audience works in the air force and he sees for himself how a key business is doing very well.

Another member of the audience who chipped in works in the same sector and said that the MRO business is a very good one to be in.

They are both "insiders", so to speak, and have first hand knowledge of how well a key business is doing and they act by buying the stock, regularly.

Of course, it is also about doing research into the businesses, looking at the numbers and taking into consideration macro-economics which includes possible FOREX gain or loss.

I like to compare current day valuations with crisis valuations. If I am able to get in at a fairly good price, I would, and this is something I blogged about before.

If a business continues to do what we expect it to do in a good way, then, it is probably not a mistake to be invested. :)

E H said...

Hi yeh, you should not ask someone else this question, not especially if he bought it at less than half your price. You should ask yourself if you can bear to hold this stock all the way to $1.55. If you can, just sit tight.

AK71 said...

Hi yeh,

I feel that I must say something in response to EH's comment although he is entitled to his opinion.

I got in initially at $1.55 a share. You have to remember that it was almost 20 years ago. I have been continually accumulating ST Engineering since then, sometimes trading the stock as well.

In recent months, I bought more at $3.30 to $3.40+. So, my average cost is higher than $1.55.

I feel that I don't have a reason to sell my investment in ST Engineering at the current price. It isn't crisis cheap, like I have said before, but neither is it expensive.

Of course, valuation is subjective and it is something you have to decide for yourself. If you feel that a stock is overvalued, you might want to sell. If you want to trade and the charts tell you that it might be good for a trade, you could.

Your decision should not be influenced by whether I bought at $1.55 or not so many years ago.

Sanye ◎ 三页 said...

Hi AK,

I have been holding STE since 2008 with an average price of 2.82. I have seen the price rallied to above 4 then came down to 3.3 and so on, but I didn't do a single trade, just collecting the dividend every year.

I am too "passive" to make more $$?

AK71 said...

Hi Sanye,

Investors who do a bit of trading, if they know how to, could improve their portfolio's performance.

Of course, I don't think it is something investors must do. It is just something they could do. :)

yeh said...

hi AK
why sell SEmb corp but keep STE?
any special reason?

Semb corp financial data looks more impressive.

seefei said...

hi sanye,

it depends on how many lots of STE you have in your portfolio. if you have ten lots you can always shave off or add 2 lots to your portfolio each time opportunity present itself.

it is like hair cut trimming.

if you have one or two lots, it is not cost efficient to trade. so better just let it stay and collect dividend.

just my 2ct worth.

AK71 said...

Hi yeh,

It is really from looking at charts which is, of course, an approximation and not a certainty. Using the same Fibo lines which I used to determine resistance for SCI at $4.84, I see stronger resistance for STE at $3.88. Of course, there is no way of telling if that resistance level would be tested in the near future. :)

yeh said...

hi AK
good sell at 4.84

hahaha, today drop 10 cent.
i wonder should i sell or just hold for dividend?

AK71 said...

Hi yeh,

I didn't sell at $4.84. My sell orders were at $4.82 and $4.83. Only the order at $4.82 was filled.

The decision was largely based on technical analysis with some consideration given to long term holding so that I am in a position to benefit from either weakness or strength in the stock.

yeh said...

hi AK

will u sell at 4.75?

well, my entry price at 4.49 average. still have some gain, or just keep for dividend?

wonder....

AK71 said...

Hi yeh,

I am quite happy holding on to my current position. So, not selling. ;)

You might want to flip a coin. ;p

caelitus said...

I am pursuing my postgraduate studies now. There are classmates from ST Aerospace, Kinetics and Marine. It is a good opportunity to learn more about ST Engg's business. The classroom is also a good networking avenue =)

AK71 said...

Hi caelitus,

You are in a very fortunate position. Please share with us what you find out. Thank you. ;p

AK71 said...

ST Engineering has booked a 6 per cent drop in second-quarter earnings. Net profit came in at S$125 million for the three months ended in June, compared to S$133.2 million in the same period a year ago.

Meanwhile revenue dropped by 3 per cent year-on-year to S$1.55 billion.

The numbers were weighed down by its marine sector which booked a 27 per cent drop in revenue to S$254 million, on the back of lower shipbuilding revenue from both its Singapore and US operations.

All in, for the first half, net profit fell by 6 per cent year-on-year to S$255 million, while revenue slipped 2.6 per cent to S$3.06 billion.

For the second quarter, the Group announced about S$1.34 billion worth of contracts. Of these, S$920 million was from the aerospace sector and S$424 million from the electronics sector.

ST Engineering said its order book stood at S$12.4 billion as of end-March this year and it expects to deliver S$2.3 billion of orders for the rest of the year.

The Group is keeping positive about the outlook for its second half. "We expect our second half results to be stronger than our first half, all be it against a pretty uncertain economic environment. We are on track to achieve our full-year outlook of comparable revenues and profit before tax versus 2014," said Mr Vincent Chong, deputy CEO of ST Engineering.

The Group said that within the aerospace maintenance, repair and operations (MRO) business, the aircraft interior design and refurbishing presents the most promising growth prospect.

Mr Chong said: "In terms of the long-term prospects of the aircraft or aerospace MRO business, we expect the business to grow, the industry to grow by about 4 per cent a year, compounded average growth. Within the MRO segment, actually the highest growth sub-segment is in the interior part of the business; that is also where we have been investing in building our capabilities and accessing the market."


Source:
http://www.channelnewsasia.com/news/business/singapore/st-engineering-reports-6/2051044.html

AK71 said...

Added to my investment in ST Engineering at $3.12 a share.

I hope to accumulate on further weakness in its stock price.

AK71 said...

What would you do now that ST Engineering's stock is trading at under $3.00 a share? ;)

"BUY order for ST Engineering at $3.02 filled.
AUGUST 19, 2015 AT 12:13 PM

"BUY order for ST Engineering at $2.82 filled.
AUGUST 24, 2015 AT 11:14 AM"

AK71 said...

Hi Mr. AK,
You commented that you added at $2.82, $3.02 and $3.12.
Can buy now $3.35?
What does your bowling ball say?

Hi R,
I won't say can or cannot.
I will say that the stock price has met resistance provided by the 200dMA.
I would feel safer to add if a pull back happens. Golden cross at $3.18 could provide support.

AK71 said...

Trading around my core position, partially divested ST Engineering at $3.35 a share.

AK71 said...

MINDEF might have to order replacements. Buy ST Engineering. ;p

Beijing on Friday warned countries against maintaining military ties with Taiwan, after Singaporean armored troop carriers were seized en route from the island that Beijing regards as a breakaway province.

Chinese foreign ministry spokesman Geng Shuang said that Beijing was verifying reports that Hong Kong customs had seized nine Singapore troop carriers and other equipment in 12 containers being shipped from Taiwan after military exercises.

Singapore's defense ministry said on Thursday it was trying to free the carriers "expeditiously", while Hong Kong customs said on Friday that its officers were still investigating the shipment.


Source:
REUTERS, 25 November 2016.

AK71 said...

ST Engineering (STE) remains a relatively defensive stock with a healthy balance sheet and secure dividend payouts, and the recent share price retreat creates a better entry point for the stock now. Its Aerospace segment has positioned itself well by investing in growth markets such as narrow-body aircraft Passenger-to-Freighter (PTF) conversions, the Chinese MRO market, and cabin interior solutions, to name a few. The Electronics segment should also benefit from the ‘Smart City’ trend, not only in Singapore but various overseas markets as well.

3Q16 earnings in line, excluding one-off writedowns. STE reported headline net profit of S$76.7m, but excluding S$61.1m in one-off writedowns and closure costs related to its Chinese specialty vehicles subsidiary that has ceased operations, 3Q16 core net profit of S$137.8m (up 3% y-o-y, 8% q-o-q) was within expectations. Orderbook remained flattish at S$11.4bn.

We lower our FY16 headline net profit estimate by 12% to account for the one-off items recorded in 3Q16, but our core estimates remain unchanged for FY16/17. We expect a reasonable earnings rebound in FY17, following a kitchen-sinking year in FY16 associated with a management transition. Cessation of losses at the Chinese specialty vehicle subsidiaries, coupled with continued growth at Electronics division, should help offset weakness at the Marine division in FY17. We believe dividends in FY16/17 should be maintained at 15 Scts, notwithstanding the one-off earnings impact in FY16.


Source:
DBS, 10 November 2016.

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