Baker Technology (SGX:BTP): A High-Conviction Long-Term Growth Stock with a Remarkable Turnaround Story

In the world of value investing, few narratives are as compelling as a company's transformation from unprofitable to a consistent cash-generating machine. Baker Technology Limited (SGX:BTP), a Singapore-listed industrial engineering firm, fits this mold with remarkable precision. Over the past five years, the company has evolved from a struggling entity to a high-margin, dividend-paying player in the energy services sector. For long-term investors, its recent underperformance may present a unique opportunity to capitalize on a stock with strong fundamentals and a durable competitive edge.

The Turnaround: From Unprofitable to Profitable

Baker Technology's journey from unprofitability to profitability is a textbook example of operational discipline and strategic focus. Between 2020 and 2024, the company's earnings per share (EPS) surged at an average annual rate of 61.4%, far outpacing the 41.8% industry average for energy services. This growth was not merely a function of revenue expansion—though revenue did grow at 11.7% annually—but a result of sharp improvements in profitability metrics.

By 2024, Baker Technology's net profit margin had doubled from 9.1% to 19.7%, reflecting better cost control and pricing power. This margin expansion was critical in transforming the company from a loss-making entity to a cash-generating machine. The company's return on equity (ROE) of 7.3% may not sound headline-grabbing, but it signals a reasonable return for shareholders given the capital-light nature of its operations.

EPS Growth and Dividend Yield: A Shareholder-Friendly Strategy

One of the most striking aspects of Baker Technology's turnaround is its aggressive EPS growth. In 2023, the company reported an EPS of S$0.041, but this figure nearly doubled to S$0.09 in 2024—a 119% year-over-year increase. Over the past three years, EPS has grown at 46% annually, outpacing even the most optimistic projections.

This earnings momentum has translated into generous dividend payouts. Baker Technology has increased its dividend from S$0.02 per share in 2023 to S$0.02 per share in 2025, delivering a 3.36% dividend yield at current prices. While the yield may not be as high as traditional utilities or real estate stocks, it is particularly compelling for a company still in its growth phase. The consistent dividend growth also signals management's confidence in the company's cash flow sustainability.

Recent Underperformance: A Buying Opportunity?

Despite its strong fundamentals, Baker Technology's stock has underperformed in the short term. As of July 2025, the share price of S$0.59 has declined by 7.09% over the past year, lagging behind the Singapore market's 23% return. This underperformance, however, may be a dislocation to be exploited rather than a red flag.

The stock's recent weakness can be attributed to two factors:
1. Sector-specific headwinds: The energy services sector has faced volatility due to shifting oil prices and regulatory uncertainties.
2. Forward-looking valuation concerns: A P/E ratio of 6.64 suggests the market is pricing in conservative expectations for future growth.

Yet, this low valuation is at odds with Baker Technology's five-year track record of outperformance. The stock has appreciated by 168% since 2020, delivering a total shareholder return (TSR) of 210% when including dividends. The recent underperformance creates an entry point for investors who believe in the company's long-term trajectory.

Valuation and Risk Considerations

Baker Technology's current valuation is undeniably attractive. With a P/E ratio of 6.64 and a P/S ratio of 1.3, the stock trades at a significant discount to its historical averages and industry peers. This low valuation is supported by its high-quality earnings and strong balance sheet, with net profit margins consistently above 19%.

However, investors should not ignore the risks. The company's dividend sustainability is a concern, as the payout ratio is currently elevated. Additionally, the quality of earnings has drawn scrutiny, with some analysts questioning the durability of its margin expansion. These factors warrant careful monitoring but do not negate the company's long-term potential.

Final Verdict: A High-Conviction Buy

Baker Technology (SGX:BTP) is a rare combination of operational excellence, profitability transformation, and shareholder-friendly policies. Its ability to grow EPS at a double-digit rate while expanding margins and rewarding shareholders with rising dividends makes it a standout in the energy services sector.

The recent underperformance, while painful for short-term traders, is a buying opportunity for long-term investors. At current levels, the stock offers an attractive entry point for those who can look past near-term volatility and focus on the company's durable competitive advantages. For investors with a five-year horizon, Baker Technology represents a high-conviction growth stock with the potential to deliver outsized returns.

In conclusion, Baker Technology's transformation from unprofitable to profitable is not just a story of financial engineering—it is a testament to the power of disciplined management and strategic reinvention. For those willing to embrace its risks, the rewards could be substantial.