Here's proof that ST Engineering is practically sitting on cash

31% ROE is just amazing.

According to OSK DMG, STE boasts of solid fundamentals, with a 31% ROE, 10-year EPS CAGR of 5% and is sitting on net cash.

The stock offers a combination of sustainable yield and earnings resilience underpinned by its diversified business model.

Here's more from OSK DMG:

The group’s largest segment, the aerospace division, accounted for 32% and 44% of 2012 group topline and PATMI respectively and has a robust outlook given the
growth in global passenger and cargo traffic, while at the same time garnering a growing share of the MRO market.

We see the company, with its historical 10-year earnings CAGR of 5%, chalking up 4.1% earnings CAGR over the next five years.

STE offers an appealing 4.4% dividend yield on a 90% payout policy. Its share price, which has pulled back by about 10% from its recent peak in late April, is now trading at a 20.6x FY13 P/E, 16% below its historical 24.5x peak.

Based on our DCF model and assuming a terminal growth rate (TGR) of 1.5% and WACC of 8.4%, we derive a SGD4.70 TP

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