ST Engineering's share price has rocketed 90% YTD. As a long-term shareholder, I explain my decision to take profits based on a DCF intrinsic value calculation, the low dividend yield, and why the current price may be overheating.
If
you've followed my journey, you'll know ST Engineering (SGX: S63) holds
a special place in my portfolio. It was one of my first Singapore stock
purchases years ago, and I've been happily collecting dividends ever since.
But
after an impressive 90% surge year-to-date, I've made a tough decision to start selling.
For
a stable, blue-chip company like ST Engineering, a move like this demands a
hard look at the numbers. After running the figures through my valuation model, I've decided to realize some profits by selling about 15% of
my holdings. Here’s a breakdown of my thought process.
Reason
1: The Math Doesn't Add Up Anymore (My DCF Analysis)
As
a value-focused investor, I always go back to the intrinsic value. I've
crunched the numbers from the latest 1H 2025 financial report using
a Discounted Cash Flow (DCF) model.
My
Calculation:
- Intrinsic
Value: ~S$6.00 per
share.
- Assumptions:
- Growth Rate: 8%
(slightly above the current 7.2% revenue growth).
- Discount
Rate: 8%
(my required return for the risk).
Why
This is a Red Flag:
The current share price has surpassed my calculated intrinsic value. For
the stock to be fairly valued at today's prices, ST Engineering would need
to sustain growth significantly higher than 8% continuously, which
I believe is a highly challenging feat for a company of its size. The 8%
growth rate already prices in solid execution; the market is now pricing in
perfection.
Reason
2: The Shrinking Dividend Cushion
One
of ST Engineering's biggest draws for me has been its reliable dividend.
However, with the share price exploding, the dividend yield has
compressed to around 2%.
While
the company has plans to increase their dividend payouts, this is entirely contingent on them
maintaining their current stellar profit growth. At this valuation, the margin
of safety provided by the dividend is simply too thin. The low yield suggests
all the good news is already baked into the price, leaving little room for
disappointment.
My
Action Plan: Prudent Profit-Taking
Let
me be clear: I still believe ST Engineering is a fantastic company. It
has paid me dividends consistently for over 7 years, and I have no doubt about
its long-term quality.
However,
a good investor knows when to be greedy and when to be fearful. The recent
surge feels like the latter.
My
strategy is disciplined:
- I've sold 15%
of my stake to
lock in gains.
- If the price
continues to defy gravity, I will slowly sell up to 50% of
my original holdings.
- This move
will allow me to recover my entire initial capital, meaning my
remaining 50% stake is purely "house money."
- I will let
that remaining portion run forever, continuing to collect dividends with
zero cost basis.
This
way, I secure my profits while still maintaining a long-term interest in a
company I believe in. If the price normalizes in the future, I won't hesitate
to buy back in.
Final
Thought: The
market is often driven by emotion in the short term. While ST Engineering's
future is bright, the current price appears to be running ahead of its
fundamentals. For fellow shareholders, it might be time to consider if your
portfolio is too heavy on this single, now-expensive, winner.
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Reviewed by Valuewarrior
on
October 06, 2025
Rating:
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