STEng – Phillip

Record order book, Positive guidance maintained

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 a key contractor to Singapore’s defence force.

  • Net income of S$134.0mn (-0.3%y-y).
  • Record high order book of S$13.0bn.
  • Positive full year guidance maintained.
  • Maintain Accumulate with unchanged TP of S$4.50.

What is the news?

STE reported net profits of S$134.0mn in 1QFY13 on sales of S$1,544.7mn. Revenue was little changed on year as higher sales from other segments were offset by a 6% decline in sales for the Electronics division. Profit growth was the strongest at the Aerospace segment as the division benefitted from a 2.6% improvement in PBT margins. Management guided for higher revenue and comparable PBT in 1H2013 compared to 1H2012, while maintaining their full year guidance for higher revenue and PBT.

How do we view this?

While the results were slightly disappointing as compared to the same period last year, we believe that seasonal contributions from the biennial Singapore Airshow did create a higher basis for comparison. By maintaining their guidance of profit growth for the full year, management have implicitly guided for a strong set of 2HFY13 performance.

Investment Actions?

We expect a neutral stock reaction to the results and maintained our Accumulate rating and TP of S$4.50. With our assumption of a 90% dividend payout, we expect the stock of STE to yield an attractive 4.1% in FY13E.

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