STEng – Phillip

Record high order book

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 an anchor customer of Singapore’s defence industry.

• 9.7% increase in PATMI boosted by one-off divestment gains of S$13.2mn
  
• Record high order book of S$12.7bn (2.1X sales)
  
• Interim dividend of 3.0cents declared
  
• Maintain Accumulate with revised TP of S$3.40
  

What is the news?

STE recorded profit growth of 9.7% driven by higher sales from all segments except Aerospace. The Group’s EBITDA margin was stable at 12.9% (2QFY11: 12.6%, 1QFY12: 11.8%). STE’s order book reached a record high at S$12.7bn (2.1X sales) after accounting for contract wins of c.S$2.1bn in the quarter. Management reaffirmed guidance for higher revenue and PBT for FY12E. Interim dividend of 3.0cents was declared.

How do we view this?

Even after adjusting for the S$13.2mn one-off gain on divestment of properties, STE’s underlying profit was strong with PBT growth of 4.4%. Core segmental performance for 1H12 remains on track to meet our full year estimates.

Investment Actions?

We tweaked our forecasts to adjust for the one-off gain on divestment of properties and maintain our Accumulate rating on STE. The stock’s earnings multiples remain below historical average at 18.5X FY13E.