STEng – Phillip

Boosters from Singapore Airshow

Company Overview

ST Engineering (STE) is an integrated engineering group with exposures to four key business segments: Aerospace, Marine, Electronics and Land Systems. The company is also an anchor customer of Singapore’s defence industry.

21% increase in PATMI on 1.5% improvement in EBITDA margins

Associates contributions boosted by biannual Singapore Airshow

Order Book of S$12.2bn (2.0X annual sales)

Maintain Accumulate with unchanged TP of S$3.37

What is the news?

STE reported profit growth of 21% as compared to the same quarter a year ago. EBITDA margins improved by 1.5ppt largely due to more favourable product mix and provisions related to the ROPAX contract termination that was made in 1QFY11. The Group’s result was boosted by the biannual Singapore Airshow that was held in the quarter, which accounted for majority of the S$10.8mn increase in PBT contributions from its Associated companies. Order book was held steady at S$12.2bn (2.0X annual sales).

How do we view this?

The results were strong, considering that first quarter is usually a weaker quarter for STE, and had already formed 24.8% of our full year estimates. STE’s order book of S$12.2bn is probably above S$13bn, if the recent contract wins in April were included (See: Defence contracts lead the way!, dated 13th April 2012).

Investment Actions?

We kept our forecasts unchanged and maintain our Accumulate rating on STE. STE’s earning yield spreads and P/E multiples remain below historical averages, reflecting undervaluation in this defensive stock, in our view.

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