Author: tfwee
STEng – BT
ST Engg Q2 profit falls 2.3% to $119.9m
Aerospace business makes up 51% of group’s net earnings in second quarter
WITH mixed results across its business sectors, Singapore Technologies Engineering (ST Engg) yesterday reported net earnings of $119.9 million for the second quarter ended June 30 – 2.3 per cent down from the corresponding period last year.
Group revenue held its ground at $1.3 billion, a slight 0.2 per cent higher than a year ago.
Hit by a weaker US dollar, lower investment income, higher depreciation, higher passenger-to-freighter prototyping costs and lower associated companies’ contributions, net earnings for the aerospace sector fell 11 per cent to $61.6 million in Q2 2008.
Land systems saw net earnings drop 6 per cent to $20.6 million. Lower contributions from associated company CityCab was one reason for the fall.
In contrast, net earnings for the marine sector rose 17 per cent to $16.2 million in Q2 2008. The electronics sector raked in net earnings of $21.1 million, 6 per cent more year on year.
ST Engg’s earnings per share was 4.01 cents in Q2 2008, 0.15 cents lower than in the year-ago period.
The group declared an interim dividend of three cents per share.
‘Our diversity helps us,’ said ST Engg’s president and CEO Tan Pheng Hock, referring to the group’s customer base and activities across business sectors and geographical regions.
Order book for the group grew by another $100 million in the second quarter to $9.29 billion as at end-June, of which some $2.14 billion would be delivered in H2 2008.
But attention at yesterday’s results briefing was centred on the aerospace business, which made up 51 per cent of the group’s net earnings in Q2 2008.
‘We have tier one customers and . . . (they) are more particular about performance and quality than about prices,’ said ST Aerospace’s president Tan Kok Khiang, when asked about the sector’s margins in today’s environment.
While the business climate may be bleaker, there are acquisition opportunities for ST Engg in areas such as the United States, Europe, China and Vietnam. ‘Valuations are definitely more reasonable,’ said group president and CEO Mr Tan.
But he added: ‘We want to ensure that we buy companies that are not in trouble, companies that are able to add value to us strategically.’
Results for ST Engg were stronger when viewed on a half-year basis. The group turned in net earnings of $242.5 million, up 4.7 per cent from a year ago. Revenue increased by 3.9 per cent to $2.62 billion.
ST Engg expects turnover and profit before tax to be ‘modestly higher’ in H2 2008 compared with the first half. As for FY 2008, profit before tax could be comparable to the previous year’s.
ST Engg shares closed unchanged at $2.80 yesterday.
MIIF – ABN AMRO
Silver medal now, room to improve
MIIF’s 1H08 result was slightly behind our expectations, with the 4.25cps dividend
below our forecasts. We expect the operating environment to pick up in the 2H. Retain
view that MIIF offers good defensive qualities in an uncertain market. Buy maintained.
Distribution slightly below expectations
MIIF’s 1H dividend of 4.25cps was below our forecast of 4.35cps. On the back of this we have reduced our full year distribution from 8.8cps to 8.7cps and reduced our FY09 forecast from 9.2cps to 9.1cps (4.6% year on year growth). Net income on an adjusted basis was down 41.6%, however this was largely as a result of asset divestments.
Mixed asset performance
Of the major assets TBC was the strongest performer with EBITDA increasing 6.7% on an
increase in subscriber numbers and effective cost control. HNE showed positive traffic growth (4.5%), with its first distribution to MIIF expected by management in September this year. Arqiva recorded EBITDA growth of 6.0%, although margins declined due to the integration of the lowermargin BT SBS business. However, CXP continues to be weak on lower steel volumes, while the distribution from MEIF was slightly weaker than we forecast.
Still solid on debt
We remain comfortable with MIIF’s debt position given its weighted average asset debt maturity of eight years, interest rate hedging (54% through 2012), and no debt refinancings required until FY11. On a proportionately consolidated basis, MIIF gearing sits at 59% (comparable to other infrastructure peers), which we expect to remain at similar levels. During the half, MIIF paid down its corporate debt facility to S$53m (from S$178m) using the proceeds from its sale of MAP securities, driving down interest costs to S$1.3m (from S$3.7m in 1H07).
Maintain Buy recommendation
MIIF continues to show that it is well protected from adverse market conditions due to the stable nature of cashflows within its assets. We have lowered our valuation and target to S$1.12, largely reflecting tougher economic conditions, but we maintain our Buy recommendation as we believe MIIF has defensive qualities that are desirable in the current market uncertainty.
STEng – CS
2QFY08 missed; visibility remains poor
● ST Engineering reported 2Q results on Tuesday evening. The results were weaker than the company’s guidance as well as our expectations which are below consensus estimates.
● Due to lower contributions from Aerospace, overall 2Q operating profit rose only 2% to S$149 mn. The weakness at Aerospace is attributed to a weaker US$, higher prototyping costs and higher depreciation on the back of increased capital expenditure.
● 1H08 turnover and net profit represents 47% and 45%, respectively, of our full year previous projection. Consequently, we have cut our FY08 net earnings forecast by 7% and expect more substantial cuts in consensus numbers. We have also cut our DCF-based target price by 7% to S$3.22 (from S$3.47).
● YTD, the stock has already fallen 25% and underperformed the market by 7%. Also, the dividend yield of 6% should provide some downside support. However, trading at 17x FY08E and 15x FY09E P/E, the stock is still not cheap especially given the companys growth profile. We are maintaining a NEUTRAL rating.
SingTel – CS
1Q09 results – Solid core results, currencies and Telkomsel caused net profit weakness
● Mobile Number Portability did not have a material negative impact on the Singapore business, and revenue and EBITDA rose QoQ; we expect this recovery to continue into subsequent quarters. Optus’s contribution was very much in line with our forecasts.
● However, total contribution from associates fell by 9.9% QoQ and 10.7% YoY. This very weak result came partly as a result of S$ appreciation, but was predominantly due to the 24.4% collapse in Telkomsels net profit in the quarter to June.
● We have cut the PBT contribution from associates by 9.5% due to currency amendments and our recently-revised Telkomsel forecasts, and this feeds through to a 5.3% cut in earnings. However, our DCF-based SOTP and target price are unchanged.
● Singtel did not announce any further capital management initiatives; it is possible that management are waiting for the announcement of the winner of the NetCo and OpCo bids for
Singapores Next Generation Network (NGN). In the meantime, the balance sheet remains strong. Outperform rating maintained.