Month: May 2009
STEng – BT
ST Engg Q1 profit falls 30.4% to $85.2m
The company increases its order book to an all time high of $11.03b
SINGAPORE Technologies Engineering’s net profit for the first quarter ended March 31, 2009, fell 30.4 per cent to $85.2 million, from $122.5 million a year earlier.
The defence and aerospace group said sales were largely flat, rising just 0.2 per cent to $1.32 billion. Earnings per share fell to 2.84 cents, from 4.11 cents a year ago.
Chief executive officer Tan Pheng Hock said the company increased its order book to ‘an all time high’ of $11.03 billion, while maintaining operating cash flow of $351 million and held $1.38 billion in cash and cash equivalent at the end of the quarter.
‘Barring unforeseen circumstances, the group expects, based on the order book and schedule deliveries, to achieve comparable turnover and (profit before tax) for FY2009 against FY2008,’ Mr Tan said.
ST Engineering also disclosed it received ‘other’ income of $9.4 million from the Jobs Credit scheme.
Much of the fall in profitability came at the group’s key aerospace division, where profit before tax halved to $39.8 million, from $82.6 million in the first quarter last year.
The company said that this was due to the absence of freighter conversion re-deliveries, reduced sales, no investment income and higher financial expenses due to recognition of fair value of an interest rate swap following refinancing of a bank loan.
Profit before tax at its land systems division fell 20 per cent to $26.4 million on lower sales in the United States, while its marine and electronics arms recorded profit growth of 19 per cent and 8 per cent respectively.
For the first half of the year, aerospace is likely to see similar sales but lower profits, while electronics and marine could see more of both sales and profit, the company guided. Sales and profits for land systems are expected to be lower compared to H1 2008, ST Engineering said.
The company had total borrowings of $912.7 million at the end of the quarter, from $881.4 million at Dec 31. However, the amount repayable within a year halved to just under $250 million, from $586.7 million three months earlier.
ST Engineering also recorded as a current asset on its balance sheet that amounts due from ‘related corporations’ were almost $600 million, from $234 million three months earlier.
Included for the first time as part of changes in the financial reporting standards was a statement on other comprehensive income. The company said it booked total comprehensive income of $127.1 million for the quarter, up 70 per cent from $74.7 million a year ago. Much of the increase was due to $39.6 million gain from foreign currency translation, against a charge of $20.2 million in the year-ago period.
The counter gained six cents, or 2.3 per cent, to $2.63 yesterday on volume of 6.6 million units, matching the gain in the benchmark Straits Times Index.
SingPost – DBS
Sweet dividend surprise!
• Core net profit exceeded expectation due to higher rental income from the optimization of leasing space
• Final 2.5 cents DPS doubled our 1.25 cents forecast, and implies 8.2% annual dividend yield
• Raised FY10F earnings by 3% due to decent rental income. Upgrade to BUY with higher target price of S$0.94
Rental income boosted results. Core net profit of S$32.6m (-3% yoy, -11% qoq) was better than our S$31m estimate. Although the impact of the current recession was visible in its business mail and logistics segments, rental income surged to S$9.7m (+17% qoq, +50% yoy) due to optimization of leasing space and lease renewals. Management highlighted that rentals are still higher than three years ago, and given its average 3-year lease tenure for lettable space, lease renewals led to higher income for Singpost.
Machine capex will be lower than expected, so no dividend cut. Management indicated that capex for the replacement or upgrade of its mail-sorting machine in 2013-2014 would be S$70m-S$100m, lower than our previous S$150m estimate. Going forward, Singpost should be able to payout S$120m cash (6.25 cent DPS) and retain S$30m cash each year, sufficient for funding capex of S$100m in 2013-14.
Raised stake in associate, secures earnings growth for the medium term. Singpost raised its stake in G3 Asia Pac from 50% to 100% recently by paying under 4x PER. This is an attractive deal, as Singpost paid only S$15m, to increase its annual net profit by S$4m on a recurring basis.
Upgrade to BUY, target price of S$0.94. Our target price is based on normalized early cycle PER of 12x (historical average is 15x). But the key attraction is the r 8.3% yield and earnings enhancement from expansion and cost cuts.
SPH – CIMB
Steady for now
Update
Page count has stabilised. The Straits Times newspaper has grown thicker since the start of the year. Our Saturday-edition page count indicates a steady 200-odd pages in April, above January’s low of 169 pages.
Pandemic impact. During the SARS period (1Q03), adex declined 16% yoy and 1% qoq, with all industries cutting their spending. Geographically, however, SARS-related infections and deaths were concentrated in Hong Kong, China, Taiwan, Vietnam and Singapore. This time round, we expect the impact of swine flu to be less severe than SARS as Asia is not the epicentre.
1Q09 adex fell by 19% yoy. AC Nielsen Media’s latest figures show newspaper advertising expenditure (adex) in 1Q09 declining by 19% yoy and 14% qoq. Extrapolating from this and recent data, SPH’s print ad revenue slid 8% yoy over Sep 08-Apr 09. April figures will be released in mid-May and we continue to expect a yoy decline but mom stability.
Outlook. Although the April page count was steady, we do not expect ad demand to rebound strongly anytime soon. However, we believe that the market has priced in recession-level ad demand, and any better-than-expected performance could catalyse its stock price, we believe. Also, SPH is likely to benefit from lower staff-related costs, thanks to pay cuts. Although management has guided for high newsprint charge-out rates in FY09, newsprint costs are likely to fall from FY10.
No change in earnings estimates. We continue to use past recessions’ print ad revenue declines (of 20%) as a benchmark to forecast FY09 earnings.
SingPost – CIMB
Still stable
• In line. 4Q09 earnings of S$35.3m (+2.5% yoy) are in line with consensus and our estimates, accounting for 24% of our full-year estimate. Revenue fell 2.9% yoy to S$115.6m. 4Q09 dividend of 2.5cts/share beat our forecast of 1.8cts/share. FY09 earnings dipped 0.3% yoy to S$148.8m on the back of revenue growth of 1.8% yoy to S$481.1m. Full-year dividend was 6.25cts/share.
• Weaker revenue because of business mail. As expected, revenue growth in 4Q was weak due to the poor economic environment. Mail revenue declined 2.1% yoy on lower international mail contributions while logistics revenue was flat. Retail revenue slipped 7.7% on lower product sales. Operating expenses fell, thanks to lower labour-related expenses as there were benefits from the Jobs Credit Scheme, and lower volume-related expenses, in line with the decline in business.
• Outlook. Management continues to guide for a challenging environment and will continue to give priority to cost management. In view of the downturn, the group is unlikely to sell Singapore Post Centre in the near future.
• Maintain Neutral; unchanged DDM-derived target price (discount rate: 8.5%) of S$0.80. Our earnings estimates are intact. Although dividend yields are attractive at 7%, we remain Neutral on the stock given limited share-price upside. We also introduce FY12 forecasts. Key risks to our rating include a change in its dividend policy and higher-than expected costs.