STEng – OCBC
REDUCING PEG FROM 22X TO 20X
- Sell-down along with broader market
- Risk-off approach for market
- Cut FV to S$3.97
As part of the recent general sell-down in the market, STE’s share price has fallen 12.1% since the peak of S$4.56 on 24 April 2013. But we note recent contract wins that attest to the group’s market leading positions. Just yesterday, ST Aerospace announced that that it has signed a longterm agreement with UTC Aerospace Systems to provide maintenance, repair and overhaul (MRO) services on the Boeing 787 Dreamliner nacelle systems for the Rolls-Royce Trent 1000 and General Electric GEnx engines. This follows a string of ST Aerospace announcements on 18 Jun, including an eight-year component MBHTM agreement with Spring Airlines Japan.
Solid 1Q13 despite no airshow
To recap, STE reported 1Q13 results that were in line with ours and consensus expectations. Revenue grew 0.2% YoY to S$1.54b, and PATMI fell 0.3% YoY to S$134m. PBT margin for the group stayed flat YoY at 10.5%. Highlights include: 1) lack of the biennial Singapore Airshow in 1Q13, which contributed to a S$6.1m drop in share of results of associates and jointly controlled entities, 2) growth in administrative expenses by S$7.9m (7% YoY) due to increased headcount from new Aerospace subsidiaries. STE’s order book reached a new high of S$13.0b as of end-Mar 2013, of which S$3.6b is expected to be delivered in the remainder of 2013.
Better outlook for 2H13
STE continues to anticipate achieving higher revenue and PBT in FY13 versus FY12. For 1H13, STE expects higher revenue and comparable PBT YoY. These suggest that 2H13 is likely to be strong for the group.
Nevertheless, as the market seems to be in a more “risk-off” mode, we lower our FY13F EPS peg to 20.0x (versus 22x previously), which results in our fair value easing to S$3.97 from S$4.36. We maintain a HOLD rating on STE, supported by an estimated FY13 dividend yield of 4.4%.