STEng – OCBC

Steady FY14 start

St Engineering (STE) reported its 1Q14 results, with revenue coming in at S$1551.8m, +0.5% YoY, and met 22% of our FY14 forecast; higher marine revenue was largely offset by lower revenue from Electronics and Land Systems sectors, while Aerospace had comparable revenue. Nevertheless, profit before tax climbed 5.8% to S$167.9m, led by higher PBT from the Marine sector. NPAT increased 2.4% to S$137.2m, or about 22% of our full-year forecast.

Comparable outlook for 1H; improvement in 2H

Going forward, STE expects to achieve comparable revenue and PBT in 1H14 as that of 1H1 – note that management defines “comparable” as +/- 5% growth. By segment, management is guiding for Aerospace and Marine sectors to show higher 1H14 revenue YoY; but PBT to be comparable. For Electronics, STE expects 1H revenue to be comparable, while PBT is likely lower. Lastly for Land Systems, both 1H revenue and PBT are expected to be lower. Nevertheless, STE continues to guide for higher revenue and PBT in FY14. One reason for the optimism probably stems from its order book, which inched up from S$ S$13.2b (as of end 2013) to S$13.4b as of end-1Q, and STE expects to deliver S$3.3b of orders in the rest of 2014. As before, STE typically derives 60-70% of revenue from its backlog, while the rest would depend on market conditions.

No change to estimates for now

As 1Q14 results as well as guidance for 1H14 and FY14 were mostly in line with our expectation, we opt to leave our FY14 and FY15 estimates unchanged for now. Our fair value also remains at S$3.84 (still based on 19x FY14F EPS). While the stock appears fairly priced around current levels, the forecast dividend yield still looks pretty decent at 4.2%, hence we maintain our HOLD rating.

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