Category: STEng
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.
STEng – BT
ST Engg unit acquiring two China firms
Eventual 75% stakes in road building equipment firms to cost 162m yuan
SINGAPORE Technologies Engineering is buying majority stakes in two Chinese makers of road construction and maintenance equipment for a total of 162 million yuan (S$36 million).
ST Engineering said yesterday its land systems arm ST Kinetics has signed two agreements to buy a 59 per cent stake in the two firms – Zhenjiang Huachen Huatong Road Machinery Co (HCHT) and Zhenjiang Huatong Aran Machinery Co (HTAR) – from their majority shareholder for 85 million yuan.
The acquisitions are subject to ST Kinetics buying a further 33.11 per cent stake in HCHT and another 16.3 per cent of HTAR from the two companies’ other shareholder, Jiangsu Huatong Machinery Co – which owns the remaining 41 per cent of both firms – for a total of 52 million yuan.
If the acquisitions are approved by Chinese regulators, ST Kinetics will own 92.11 per cent of Huachen Huatong and 75.3 per cent of Huatong Aran.
ST Kinetics plans to inject a further 25 million yuan in cash into HCHT after the deals are completed, while Jiangsu Huatong Machinery will inject land, on which some of the factory buildings of HCHT are situated, into the firm.
The land injection from Jiangsu Huatong Machinery will dilute ST Kinetics’ final stake in HCHT to 75.3 per cent, the same as its stake in HTAR.
Jiangsu Huatong Machinery will own the remaining 24.7 per cent stake in each of the two companies.
The acquisitions ‘are in line with ST Kinetics’ strategy to grow its specialty vehicles business in China and the region’, ST Engineering said in a statement.
ST Kinetics already has two other specialty-vehicle joint ventures in China – one that makes off-road dump trucks and another that produces wheeled excavators. It hopes the latest acquisitions in China will also expand its product development and production capabilities in road construction and maintenance equipment, adding to those of VT LeeBoy, its wholly owned US subsidiary.
‘These acquisitions would allow us to extract value from the relationships between VT LeeBoy in the US and HCHT and HTAR in China to offer our dealers and customers in both countries and beyond, a more comprehensive range of road construction and maintenance equipment,’ said ST Kinetics president Sew Chee Jhuen.
STEng – CIMB
Weak quarter, lacks near-term catalysts
• Below expectations. 4Q08 net profit of S$85m (-42% yoy) is 33% below our estimate and 31% below consensus. The weakness was due to impairment in the value of long-term quoted investments in Electronics and Land System amounting to S$23m and higher-than-expected provisions for doubtful debts of S$22m. 4Q08 net profit also included a tax write-back of current and deferred tax of S$18m. Stripping out the tax reversal, 4Q08 net profit would have been S$67m or 47% below our estimate, while FY08 net profit would have been S$434m or 15% below.
• Expect continued weak margins for Aerospace. 4Q08 PBT of S$43m (-51% yoy) for Aerospace was 45% below our expectation mainly due to lower-than-expected contributions from associates on lower volume and higher-than-expected provisions for doubtful debts. FY08 PBT margin was only 14% (FY07: 19%). We believe the weakness could persist into FY09 on lower MRO volume due to a challenging aviation industry, higher depreciation expense and losses from PTF conversion projects in 1H09.
• Outlook for FY09. Management expects group turnover to be higher in FY09 and comparable PBT. While Aerospace PBT is expected to be stable, the remaining divisions are expected to perform better. Management is hopeful about defence exports citing high enquiries. Order book was a record S$10.6bn (FY07: S$9.5bn) with about S$3.6bn for recognition in FY09.
• Earnings estimates cut by 9-11% for FY09-10, to reflect guidance. We lower our utilisation rate and margin assumptions for Aerospace and sales growth expectations for Land and Marine. We also introduce FY11 estimates.
• Lack near-term catalysts. STE remains in excellent health with net cash of about S$200m. It has also maintained its 100% dividend payout with a total of 15.8cts declared for FY08. While management continues to be on the lookout for acquisitions, we see limited near-term catalysts. Should credit markets worsen, we believe its key attraction of 100% payouts could be compromised by the funding of sizeable acquisitions. Valuation of 14x CY09 P/E is not attractive enough against peers and its muted growth.
• Maintain Underperform; target price reduced to S$2.38 from S$2.61, following our earnings downgrade. Our target is still based on blended valuations. A shareprice re-rating is likely only in 2H09, probably triggered by an improved Aerospace.
STEng – DBS
Dividend concerns unfounded
Excluding one-off impairment charge in 4Q08, FY08 net profit of S$473.6m (down 6%) was in line with our expectations. Allaying market concerns, ST Engineering declared a 100% dividend payout, amounting to 15.8cts per share for FY08. While a record orderbook of S$10.6b secures 60-70% of FY09 revenues, headwinds in aerospace sector will continue to be a drag on earnings. We lower our EPS forecasts for FY09 and FY10 by about 8% each. However, gross cash level above S$1b and strong free cash flow generation of close to S$500m per year should help STE sustain its dividend payout record, translating to a dividend yield of 7.5% Maintain BUY, TP reduced to S$2.50.
4Q08 earnings hit by one-off items. 4Q08 PBT came in at S$89m (down 38% y-o-y), largely due to the impairment of three equity investments worth S$23m (two in Electronics, one in Land Systems) and a S$31.7m allowance for doubtful debts related to the bankruptcy of aerospace customers, Sterling and EAMS. Net profit of S$102m was boosted by a tax credit of S$18m.
Weaker performance in key sectors. Apart from provisions for doubtful debt, aerospace segment PBT of S$272m (down 20% y-o-y) was hit by high depreciation charges on new facilities, prototyping costs for PTF conversions and a weak US$ impact of S$19m. Marine revenues and margins were weak as major revenues from the frigate program were booked in FY07 and losses were recognised on a contract signed last year.
Dividend yield secured by record orderbook. Risk to the orderbook is minimal as defence and government related projects make up more than 50%. The Group is also expected to be a key beneficiary of the increased government spending on infrastructure projects worldwide. Net cash of close to S$200m and strong operational cashflows indicate dividend sustainability and a yield of 7.5% at current trough valuations. Maintain BUY, at a reduced TP of S$2.50.