Author: kktan
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.
STEng – OCBC
STRONG ORDER BOOK LAYS 2H12 FOUNDATION
- 2Q12 results are in line
- Good performance by sectors
- Solid order book
Solid 2Q12 performance
ST Engineering (STE) posted 2Q12/1H12 results that were generally in line with consensus and our estimates. 1H12 EPS of 9.05 S cents formed 50% of ours and consensus’ estimates for FY12. STE’s 2Q12 revenue climbed by 6% YoY to S$1.57b and PATMI rose by 10% YoY to S$143.1m. All sectors, apart from Aerospace, posted higher revenues, and all sectors contributed higher pre-tax profits.
Generally healthy performance for sectors
While the Aerospace sector saw revenue declined 2% YoY to S$493m, partially due to unfavourable Euro translation and lower revenue from the engines division, its pre-tax profit increased 20% YoY to S$81.6m with improved EBITDA and a S$7.0m gain on the disposal of a property. Electronics performed well, registering a 2Q12 revenue increase of 9% to S$348m and a pre-tax profit increase of 17% YoY to S$41.8m, on the back of a favourable sales mix. Land Systems saw revenue and pre-tax profit climbed 11% and 6% YoY to S$389m and S$32.0m respectively; the latter included a S$5.8m gain on the disposal of a property. Land System’s EBITDA had fallen 12% YoY to S$33.5m due to an unfavourable product mix and higher operating expenses. Higher shipbuilding revenue helped to boost the Marine sector’s 2Q12 revenue by 7% YoY to S$277m and pre-tax profit rose 11% YoY to S$31.6m.
Enlarged order book to support 2H12
STE’s order book grew from S$12.2b to S$12.7b between end Mar and end Jun 2012. The size of the 2Q12 order book compares even more favourably to 2Q11’s order book of S$10.8b. To recap, in 2Q12, Aerospace secured S$370m of new contracts and its first VIP Boeing Business Jet maintenance check contract. Marine won a S$880m contract to design and build four patrol vessels for the Royal Navy of Oman. Management expects S$2.5b of STE’s order book will be delivered in 2H12.
Maintain BUY
Management is cautiously optimistic and continues to guide higher revenue and pre-tax profit for FY12 versus FY11. We maintain our fair value estimate of S$3.50/share and BUY rating on STE.
STEng – OCBC
STRONG ORDER BOOK LAYS 2H12 FOUNDATION
- 2Q12 results are in line
- Good performance by sectors
- Solid order book
Solid 2Q12 performance
ST Engineering (STE) posted 2Q12/1H12 results that were generally in line with consensus and our estimates. 1H12 EPS of 9.05 S cents formed 50% of ours and consensus’ estimates for FY12. STE’s 2Q12 revenue climbed by 6% YoY to S$1.57b and PATMI rose by 10% YoY to S$143.1m. All sectors, apart from Aerospace, posted higher revenues, and all sectors contributed higher pre-tax profits.
Generally healthy performance for sectors
While the Aerospace sector saw revenue declined 2% YoY to S$493m, partially due to unfavourable Euro translation and lower revenue from the engines division, its pre-tax profit increased 20% YoY to S$81.6m with improved EBITDA and a S$7.0m gain on the disposal of a property. Electronics performed well, registering a 2Q12 revenue increase of 9% to S$348m and a pre-tax profit increase of 17% YoY to S$41.8m, on the back of a favourable sales mix. Land Systems saw revenue and pre-tax profit climbed 11% and 6% YoY to S$389m and S$32.0m respectively; the latter included a S$5.8m gain on the disposal of a property. Land System’s EBITDA had fallen 12% YoY to S$33.5m due to an unfavourable product mix and higher operating expenses. Higher shipbuilding revenue helped to boost the Marine sector’s 2Q12 revenue by 7% YoY to S$277m and pre-tax profit rose 11% YoY to S$31.6m.
Enlarged order book to support 2H12
STE’s order book grew from S$12.2b to S$12.7b between end Mar and end Jun 2012. The size of the 2Q12 order book compares even more favourably to 2Q11’s order book of S$10.8b. To recap, in 2Q12, Aerospace secured S$370m of new contracts and its first VIP Boeing Business Jet maintenance check contract. Marine won a S$880m contract to design and build four patrol vessels for the Royal Navy of Oman. Management expects S$2.5b of STE’s order book will be delivered in 2H12.
Maintain BUY
Management is cautiously optimistic and continues to guide higher revenue and pre-tax profit for FY12 versus FY11. We maintain our fair value estimate of S$3.50/share and BUY rating on STE.
ComfortDelgro – DMG
Highlights from 2Q12 results luncheon
We hosted ComfortDelGro (CD) for a post 2Q12 results luncheon. Management’s tone was positive: (1) Continues to see opportunities in Singapore taxi market (2) Confident in meeting taxi availability standards (3) BSEP to have neutral impact to CD’s earnings (4) China and Australia are targets for future expansion.
Well positioned as the dominant Taxi player in Singapore. Management shared that despite rising COE prices, it still believes in opportunities for growth in Singapore’s taxi market in the form of cashless transaction volumes and taxi bookings. CD has not increased rental rates for its newest batch of taxis and believes that operating margins of 11-12% still makes it an attractive business to hold on to.
CD likely to have less difficulty meeting taxi availability standards. On recent steps the government is taking to improve taxi availability, CD shared that about 80% of its taxi fleet runs on two shifts (two drivers sharing rental of one taxi). It believes that its performance on taxi availability standards would likely exceed the rest of the industry that is likely to have less than 50% of fleet running on two shifts.
“Earnings neutral” in Bus Services Enhancement Programme (BSEP). CD notes that although the government will be paying for buses as well as operating expenses under the BSEP, these will be taken onto CD’s books under assets and balanced with a liability to the government. A revenue grant will also be provided to offset against the depreciation of these assets.
Though CD will benefit from cost efficiencies from the increased fleet size, the government will charge CD its share of cost on an average cost basis. The recent increase in bus driver wages will also be borne by the government and there will not be anymore wage increase in Jan 2013. The BSEP is expected to have a neutral impact to CD’s earnings and CD could receive reimbursement through various income streams such as waived depot charges.
China and Australia targeted for expansion. CD has highlighted China and Australia as possible destinations for overseas expansion opportunities. Management commented that acquisitions should ideally range between S$50-S$100m but added that even a more sizable transaction in the likes of a few hundred million dollars would be achievable. CD targets investments that can generate an IRR of mid teens over a 10 year period.
ComfortDelgro – DMG
Highlights from 2Q12 results luncheon
We hosted ComfortDelGro (CD) for a post 2Q12 results luncheon. Management’s tone was positive: (1) Continues to see opportunities in Singapore taxi market (2) Confident in meeting taxi availability standards (3) BSEP to have neutral impact to CD’s earnings (4) China and Australia are targets for future expansion.
Well positioned as the dominant Taxi player in Singapore. Management shared that despite rising COE prices, it still believes in opportunities for growth in Singapore’s taxi market in the form of cashless transaction volumes and taxi bookings. CD has not increased rental rates for its newest batch of taxis and believes that operating margins of 11-12% still makes it an attractive business to hold on to.
CD likely to have less difficulty meeting taxi availability standards. On recent steps the government is taking to improve taxi availability, CD shared that about 80% of its taxi fleet runs on two shifts (two drivers sharing rental of one taxi). It believes that its performance on taxi availability standards would likely exceed the rest of the industry that is likely to have less than 50% of fleet running on two shifts.
“Earnings neutral” in Bus Services Enhancement Programme (BSEP). CD notes that although the government will be paying for buses as well as operating expenses under the BSEP, these will be taken onto CD’s books under assets and balanced with a liability to the government. A revenue grant will also be provided to offset against the depreciation of these assets.
Though CD will benefit from cost efficiencies from the increased fleet size, the government will charge CD its share of cost on an average cost basis. The recent increase in bus driver wages will also be borne by the government and there will not be anymore wage increase in Jan 2013. The BSEP is expected to have a neutral impact to CD’s earnings and CD could receive reimbursement through various income streams such as waived depot charges.
China and Australia targeted for expansion. CD has highlighted China and Australia as possible destinations for overseas expansion opportunities. Management commented that acquisitions should ideally range between S$50-S$100m but added that even a more sizable transaction in the likes of a few hundred million dollars would be achievable. CD targets investments that can generate an IRR of mid teens over a 10 year period.