Author: tfwee
STEng – BT
ST Engg Q2 profit drops 9.4% to $108.7m
It expects to achieve higher revenue and pre-tax profit in H2
SINGAPORE Technologies (ST) Engineering’s net profit for the second quarter fell 9.4 per cent to $108.7 million, from $119.9 million a year ago. This was despite an 8.3 per cent rise in turnover to $1.4 billion for the three months ended June 30.
The defence and aerospace group said that the year-on-year revenue rise was attributable to higher turnover from its electronics, marine and aerospace divisions, which offset the land systems sector’s lower turnover for the quarter.
But lower profit before tax from both its aerospace and land systems sectors offset growth in profits from the electronics and marine sectors.
The aerospace sector’s profit before tax fell 18 per cent to $60.9 million due to unfavourable sales mix and the US dollar exchange rate, while the land systems division’s profit fell a sharper 32 per cent to $17.2 million due to lower turnover, product mix and higher operating expenses.
Land systems’ revenue fell due to lower export deliveries of its munitions and weapons business, the group said.
The marine and electronics sectors saw pre-tax profit growth of 19 per cent to $24.3 million and 12 per cent to $32.9 million respectively.
During the second quarter, key order-book deliveries which contributed to higher revenue overall included more 757 passenger-to-freighter conversion redeliveries, milestone completions of communications and MRT projects, higher specialty vehicle sales, and favourable sales mix for shipbuilding.
ST Engineering’s order book stood at $10.74 billion as at June 30, of which $2.06 billion is expected to be delivered in the second half of this year.
Chief executive officer Tan Pheng Hock said at the group’s results briefing yesterday that ST Engineering ‘is not a seasonal stock’ and that as its revenue is order-book driven, comparisons with Q2 2008 may not reflect its performance.
When measured against Q1’s results, for instance, ST Engineering posted a 7 per cent increase in turnover and 28 per cent growth in net profit in the second quarter.
Comparing H1 2009 to H1 2008, the first half of this year registered 4.3 per cent revenue growth to $2.7 billion, while net profit fell 20 per cent to $193.9 million.
The group expects to achieve higher revenue and pre-tax profit in the second half of this year.
Mr Tan said: ‘Barring unforeseen circumstances, the group expects to achieve comparable turnover and profit before tax for FY 2009 over FY 2008.’
The group received $9.8 million from the government’s Jobs Credit Scheme in the second quarter.
ST Engineering had total borrowings of $897.5 million at the end of the quarter, compared with $881.4 million on Dec 31.
But the amount repayable within a year fell to $234 million, from $586.7 million three months before.
Its cash and cash equivalents at June 30 totalled $1.08 billion, $133 million higher than it had been at the end of Q2 last year.
The group’s total comprehensive income of $63.7 million attributable to shareholders was a 42.6 per cent drop from Q2 last year. But for the first half of this year, total comprehensive income rose 2.7 per cent to $190.8 million.
Earnings per share for the second quarter fell to 3.62 cents, from 4.01 cents in Q2 2008. Net asset value per share at the end of the second quarter was 46.7 cents, against 47 cents a year back.
ST Engineering’s board has approved an interim ordinary dividend of three cents a share, payable on Sept 10. The counter closed unchanged at $2.63 a share yesterday.
SMRT – CIMB
Boost from lower fuel costs
• Above expectations. 1QFY10 net profit of S$48.2m (+19.6% yoy) was above our and market consensus of S$40m. This was attributed to lower fuel costs, lower average staff costs from the jobs credit scheme and lower other opex, despite flat revenue of S$215.8m. The flat revenue was due mainly to fare rebates and lower taxi rental income from a reduced fleet size. No dividend was declared.
• Operating expenses. Operating expenses fell 1.3% yoy to S$171m on lower energy costs (-21% yoy) and other expenses (-4.7% yoy). Within energy, diesel costs fell 53% yoy to S$7.5m, while electricity costs rose 16% yoy to S$16m due to higher consumption, despite 25% lower rates from 1 Apr 09 under the latest energy contract. Staff cost rose 3.3% yoy on higher headcount (currently 6,474 staff, +13% yoy) for the opening of the Circle Line, salaries and CPF contributions.
• Operational review. Revenue from all transport-related segments fell; train and bus revenues fell on fare rebates despite posting ridership growth of 3% yoy and 0.05% respectively. Average fares per trip fell between 2-4%. However, group PAT margins improved to 22.3% from 18.7% a year ago, thanks to good cost management. LRT, bus and taxi operations all turned profitable, albeit just marginally. Rental growth (+12% yoy) was buoyed by increased 7% yoy of rental space while rental rates were steady.
• Challenging outlook. Train and bus revenues are expected to be lower on lower fares and higher transfer rebates. Advertising is also expected to slow down in tandem with the slower economy. Outlook for taxis has improved after trimming the fleet by 12% yoy. Overall operating costs should rise with the opening of the Circle Line, repair and maintenance and higher electricity expenses.
• Maintain Neutral. Despite the outperformance, we believe the remaining quarters will be challenging. We fine-tune our FY10-12 forecasts by -0.3 to 1.4%. We maintain our WACC of 9.6%, which translates to a slightly lower DCF-derived target price of S$1.76 (previously S$1.77), supported by a dividend yield of about 4.5%.
SMRT – Phillip
1st Quarter FY2010 Results
Flat year-on-year revenue. The Group announced 1QFY10 revenue of $215.8 million, a decrease of $0.1 million compared to the same period last year showing signs that the fare reduction package has affected revenue streams from its train and bus segments. The Group also attributes the flat revenue to a smaller average hiredout fleet for taxis. Net profit showed a rise of 19.6% from $40.6 million in 1QFY09 to $48.2 million 1QFY10. There was an approximately $7.5 million rise in other operating income to $13.1 million, which seems like a one-off and when stripped, bottomline figures are flattish as well.
The MRT segment saw revenue at $115.6 million, a decrease of $0.03 million from 1QFY09. The growth in average daily ridership did partially offset the lower average fare for 1QFY10. Operating profit for MRT did increase by 8.0% to $36.7 million due mainly to higher operating income that was partially offset by higher repairs and maintenance as well as electricity costs. LRT revenue fell marginally to $2.2 million with an operating profit of $0.04 million.
Bus operations revenue for 1QFY10 fell 3.7% to $49.9 million due to lower average fares coupled with lower average daily ridership. It did however post an operating profit of $1.2 million due mainly to lower diesel cost, which is offset against lower revenue and higher repairs and maintenance expenses.
Taxi operations, due to a smaller average hired-out fleet, saw a decline in revenue by $1.2 million or 6.6% to $17.7 million in 1QFY10 compared to $18.9 million in the same period last year. A smaller average holding fleet allowed them to book an operating profit of $1.1 million due to lower other operating expenses.
Rental segment saw a rise in revenue by $1.6 million or 11.9% to $15.5 million compared to $13.8 million in 1QFY09. Operating profit increased by $1.4 million or 12.9% to $12.5 million. Increase in revenue and operating profit for the rental segment is mainly due to a better yield as well as increased rental space following the redevelopment of commercial spaces at various MRT stations.
Advertising revenue fell by $0.3 milion or 4.5% to $5.4 million attributable to the weak economic backdrop. Operating profit thus fell by $0.4 million to $3.5 million.
Engineering and Other Services saw higher revenues of $10.6 million, which is $1.7 million above 1QFY09’s revenue. The increase was attributable to increased consultancy revenue and higher fees from overseas projects. Operating profit was however $0.6 million lower due mainly to lower taxi accident repairs.
Downgrade to HOLD with an adjusted fair value estimate of $1.89. It is evident that the fare reduction package introduced in April this year, which will last for the next 15 months from the 1st of April, has shown signs that it has taken its toll on SMRT’s train and bus revenues despite rising average daily ridership for the train segment. SMRT is expected to be facing headwinds in the coming periods due to the fare reduction package affecting train and bus revenue segments as well as the uncertain economic backdrop already affecting taxi operations and advertising revenues. We have adjusted some of our operating expenses as well as revenue segments to arrive at a slightly lower fair value estimate of S$1.89 (previously S$1.92). As this represents only an upside potential of 9.88% from the last traded price of $1.72, we are downgrading SMRT to a HOLD call with a fair value estimate of S$1.89.
STEng – CNA
ST Engineering’s Q2 net profit down 9.4% to S$108.7m
ST Engineering has posted a 9.4 per cent drop in second quarter net earnings to S$108.7 million from a year ago on rising costs and operating expenses.
Revenue for the three months to June rose 8 per cent to S$1.4 billion. But this failed to offset the rise in costs and expenses during the quarter.
Compared to a year ago, cost of sales rose 11.4 per cent while operating expenses rose 8.2 per cent.
Nonetheless, the company maintained a strong order book of S$10.7 billion as of June. About S$2 billion of these orders are expected to be delivered in the second half of the year.
Barring unforeseen circumstances, ST Engineering expects to achieve higher turnover and profit before tax in the second half of the financial year, compared to the first half.
SPH – UOBKH
Property Boom Fuels Advertising Spending Recovery
Diminishing contraction. UOB Kay Hian page-count monitor of The Straits Times indicates further improvement in advertising spending in July with a smaller yoy contraction of 10% (June: -16%, May: -14%, April: -16%, March: -22%). Anecdotal evidence points to a rise in property ads on the back of Singapore’s residential property boom.
With greater business confidence, hiring is back. The total number of recruitment ad pages has improved from 230 in March to 279 in July. The job market remains healthy with the seasonally-adjusted unemployment rate for 2Q09 remaining unchanged at 3.3%, the same as in 1Q09. Resident unemployment even declined to 4.6% in 2Q09, from 4.8% in 1Q09.
The worst is over. While Singapore Press Holdings (SPH) is usually a latecycle recovery play, we believe its advertising revenue (AR) growth will stage an early comeback this time round, with advertising spending recovery aided by the opening of Singapore’s two mega integrated resorts (IRs) – Marina Bay Sands and Resorts World@Sentosa by end-09/1Q10.
Proxy to an improving domestic economy as well as a yield play. In view of increasing evidence of an advertising spending recovery, we raise our target price for SPH by 13% to S$4.40, in line with our sum-of-the-parts (SOTP) valuation of S$4.38/share. Our previous target price of S$3.90 was pegged at a 10% discount to our SOTP valuation, which has factored in Paragon’s recent
revaluation of S$1.98b in June. SPH offers an attractive annual dividend yield of 6-7%.