STEng – OSK DMG

Meeting Expectations

ST Engineering (STE)’s 2Q13 PATMI edged up 3.3% y-o-y to SGD148m, within our expectations. Its orderbook of SGD12.7bn supports our 6.7% earnings growth forecast for FY13. We continue to like STE for its solid fundamentals, with a 31% ROE and a 4.2% yield. Maintain BUY, with a DCF-derived TP of SGD4.70. The company will distribute an interim dividend of three cents a share on 13 Sept 2013.

2Q13 results within expectations. STE’s 2Q13 results were in line, with 2Q13 and 1H13 PATMI accounting for 24% and 46% of our and consensus’ FY13 estimates respectively. Given that 1H has historically been weaker than 2H, Management expects higher revenue and PBT in 2H13 compared to 1H13.

Broad-based growth. 2Q13 PATMI grew 3.3% y-o-y and 10.3% q-o-q to SGD148, while PBT margins remained stable, declining by a marginal 0.1ppt y-o-y to 11.9%. STE recorded growth across all its business segments on a PBT level. Its key aerospace segment’s PBT growth was muted (+0.9% y-o-y), partly due to a SGD7m disposal of property gain in 2Q12.

Orderbook remains robust. STE reported an orderbook of SGD12.7bn as of end 2Q13 (vs SGD13.0bn in end-March 2013), supported by SGD430m of new contract wins by its aerospace arm, which include an exclusive component maintenance-by-the-hour (MBH) contract with Spring Airlines Japan, as well as a 5-year multi-crew pilot licence (MPL) training contract with Qatar Airways. Its electronics division secured SGD207m of new contracts including three rail contracts from the Land Transport Authority (LTA) as well as Satcoms solutions & communications systems projects. The company expects to deliver SGD2.8bn of the orderbook in 2H13.

Maintain BUY on strong profit matrix. STE displays solid fundamentals with its: i) 31% ROE, ii) 10-year EPS CAGR of 5%, iii) net cash, and iv) 4.2% yield. The stock currently trades at a 21.5x FY13 P/E, 12% below its historical 24.5x peak.

STEng – OSK DMG

Meeting Expectations

ST Engineering (STE)’s 2Q13 PATMI edged up 3.3% y-o-y to SGD148m, within our expectations. Its orderbook of SGD12.7bn supports our 6.7% earnings growth forecast for FY13. We continue to like STE for its solid fundamentals, with a 31% ROE and a 4.2% yield. Maintain BUY, with a DCF-derived TP of SGD4.70. The company will distribute an interim dividend of three cents a share on 13 Sept 2013.

2Q13 results within expectations. STE’s 2Q13 results were in line, with 2Q13 and 1H13 PATMI accounting for 24% and 46% of our and consensus’ FY13 estimates respectively. Given that 1H has historically been weaker than 2H, Management expects higher revenue and PBT in 2H13 compared to 1H13.

Broad-based growth. 2Q13 PATMI grew 3.3% y-o-y and 10.3% q-o-q to SGD148, while PBT margins remained stable, declining by a marginal 0.1ppt y-o-y to 11.9%. STE recorded growth across all its business segments on a PBT level. Its key aerospace segment’s PBT growth was muted (+0.9% y-o-y), partly due to a SGD7m disposal of property gain in 2Q12.

Orderbook remains robust. STE reported an orderbook of SGD12.7bn as of end 2Q13 (vs SGD13.0bn in end-March 2013), supported by SGD430m of new contract wins by its aerospace arm, which include an exclusive component maintenance-by-the-hour (MBH) contract with Spring Airlines Japan, as well as a 5-year multi-crew pilot licence (MPL) training contract with Qatar Airways. Its electronics division secured SGD207m of new contracts including three rail contracts from the Land Transport Authority (LTA) as well as Satcoms solutions & communications systems projects. The company expects to deliver SGD2.8bn of the orderbook in 2H13.

Maintain BUY on strong profit matrix. STE displays solid fundamentals with its: i) 31% ROE, ii) 10-year EPS CAGR of 5%, iii) net cash, and iv) 4.2% yield. The stock currently trades at a 21.5x FY13 P/E, 12% below its historical 24.5x peak.

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