STEng – OCBC

NEAR MISS WITH POSITIVE OUTLOOK

FY11 revenue flat; PATMI up 7%

Robust order book of S$12.3b

12.5 cent dividend payout

Lower revenue but higher PATMI

ST Engineering (STE) 4Q11 revenue fell 5% YoY to S$1.5b but PATMI edged 2% higher to S$152m. The 4Q11 PATMI gain was primarily driven by two factors – 1) a total of S$10m of one-off losses in 4Q10 and 2) a lower tax rate of 16% in 4Q11, compared to the 23% tax rate in 4Q10. For the full year, STE’s FY11 revenue remained flat at a tad shy of S$6b while PATMI grew 7% to S$528m, missing consensus revenue and PATMI estimates by 8% and 4% respectively. On a more positive note, STE disclosed a robust order book of S$12.3b at end-FY11 and announced a total dividend payout of 12.5 cents/share, which represents a 90% dividend payout ratio for FY11. The dividend payout is made up of a final dividend of 4 cents/share and a special dividend of 8.5 cents/share.

Segmental contribution

In terms of revenue contribution from the different segments in 4Q11, Aerospace grew a strong 14% YoY to S$503m, Electronics gained 8% to S$408m, Land Systems remained flat at $465m, while Marine plunged 68% to S$91m. Management clarified that STE’s Marine segment was hit by a one-time S$176m reversal of revenue, which was the result of the termination of a shipbuilding contract for a Ropax ferry with Louis Dreyfus Armateurs announced during 4Q11. Land Systems was the star segment in pre-tax profit growth recording a 27% YoY jump to S$37m, while Marine edged 1% higher to S$38m. However, Aerospace pre-tax profit fell sharply by 19% to S$71m and Electronics eased 2% to S$33m.

Maintain BUY with higher S$3.32 fair value

At last night’s results briefing, management guided for both revenue and pre-tax profit growth in FY12, barring unforeseen circumstances. Compared to our previous fair value estimate of S$3.01/share, based on an 18.5x P/E multiple, we now peg our estimate of STE’s FY12 EPS to its historical average forward P/E multiple of 19x to arrive at a fair value of S$3.32/share. Maintain BUY.

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