STEng – DBSV

On track to strong growth year

  • 3Q12 net profit of S$146m (+9% y-o-y) ahead of our estimates; margin improvements across all segments
  • Revised up FY12/13F earnings by 3-4%
  • YTD order wins of S$3.5bn already past FY11 levels; underpins FY13/14 earnings visibility
  • Maintain BUY with higher TP of S$3.80

Highlights

Delivering strong results again. 3Q12 net profit of S$146m (up 9% y-o-y and 2% q-o-q) came in above our estimates of about S$140m, driven by strong margins across all business segments. Revenue was up 11% y-o-y to S$1.54bn, driven by the Aerospace, Electronics and Land Systems sectors. 9M12 net profit of S$424m accounts for more than 75% of our existing full-year estimates for FY12.

Margin improvement across all sectors. Group PBT margin improved to 12% in 3Q12 from 11.5% in 1Q12. Aerospace core PBT margin remained steady at 15% (17% including write-back of provisions), while Electronics and Marine PBT margins of 12% and 13% came in at the higher end of the historical range. Adjusting for S$14m of provisions, Land Systems PBT margin was also strong at 8.7%.

Our View

Strong order wins momentum. STE closed the quarter with a S$12.5bn orderbook. YTD, STE has announced close to S$3.5bn worth of new contracts, which is already ahead of the S$3.2bn worth of contracts announced in FY11. In 3Q12, the Aerospace division led with S$690m worth of new orders, continuing the momentum from previous quarters. In what could potentially be a medium to long term positive development, STE, along with consortium partner SAIC, has recently been chosen by United States Marine Corps as 1 of 4 contenders for the ~US$3bn Marine Personnel Carrier programme. This potentially places STE’s defence capabilities at par with more established players, and could lead to more international recognition in future.

Recommendation

Maintain BUY. With this quarter in the bag, STE’s growth trajectory seems to be firmly on track, driven by healthy orderwin momentum and improvement in margins. We revise upwards our FY12/13F earnings estimates by about 2.6%/ 3.9% to account for the above. We now expect robust 9% earnings growth in FY12, and 6% growth in FY13/14. Given visible earnings growth, strong balance sheet and healthy dividend yield of 5%, we maintain our BUY call. Our TP, which is based on the blended valuation methodology, is revised up to S$3.80 as we roll over to FY13 numbers.

STEng – DBSV

On track to strong growth year

  • 3Q12 net profit of S$146m (+9% y-o-y) ahead of our estimates; margin improvements across all segments
  • Revised up FY12/13F earnings by 3-4%
  • YTD order wins of S$3.5bn already past FY11 levels; underpins FY13/14 earnings visibility
  • Maintain BUY with higher TP of S$3.80

Highlights

Delivering strong results again. 3Q12 net profit of S$146m (up 9% y-o-y and 2% q-o-q) came in above our estimates of about S$140m, driven by strong margins across all business segments. Revenue was up 11% y-o-y to S$1.54bn, driven by the Aerospace, Electronics and Land Systems sectors. 9M12 net profit of S$424m accounts for more than 75% of our existing full-year estimates for FY12.

Margin improvement across all sectors. Group PBT margin improved to 12% in 3Q12 from 11.5% in 1Q12. Aerospace core PBT margin remained steady at 15% (17% including write-back of provisions), while Electronics and Marine PBT margins of 12% and 13% came in at the higher end of the historical range. Adjusting for S$14m of provisions, Land Systems PBT margin was also strong at 8.7%.

Our View

Strong order wins momentum. STE closed the quarter with a S$12.5bn orderbook. YTD, STE has announced close to S$3.5bn worth of new contracts, which is already ahead of the S$3.2bn worth of contracts announced in FY11. In 3Q12, the Aerospace division led with S$690m worth of new orders, continuing the momentum from previous quarters. In what could potentially be a medium to long term positive development, STE, along with consortium partner SAIC, has recently been chosen by United States Marine Corps as 1 of 4 contenders for the ~US$3bn Marine Personnel Carrier programme. This potentially places STE’s defence capabilities at par with more established players, and could lead to more international recognition in future.

Recommendation

Maintain BUY. With this quarter in the bag, STE’s growth trajectory seems to be firmly on track, driven by healthy orderwin momentum and improvement in margins. We revise upwards our FY12/13F earnings estimates by about 2.6%/ 3.9% to account for the above. We now expect robust 9% earnings growth in FY12, and 6% growth in FY13/14. Given visible earnings growth, strong balance sheet and healthy dividend yield of 5%, we maintain our BUY call. Our TP, which is based on the blended valuation methodology, is revised up to S$3.80 as we roll over to FY13 numbers.

Comments are Closed