STEng – Phillip
Record order book, Positive guidance maintained
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 a key contractor to Singapore’s defence force.
- Net income of S$134.0mn (-0.3%y-y).
- Record high order book of S$13.0bn.
- Positive full year guidance maintained.
- Maintain Accumulate with unchanged TP of S$4.50.
What is the news?
STE reported net profits of S$134.0mn in 1QFY13 on sales of S$1,544.7mn. Revenue was little changed on year as higher sales from other segments were offset by a 6% decline in sales for the Electronics division. Profit growth was the strongest at the Aerospace segment as the division benefitted from a 2.6% improvement in PBT margins. Management guided for higher revenue and comparable PBT in 1H2013 compared to 1H2012, while maintaining their full year guidance for higher revenue and PBT.
How do we view this?
While the results were slightly disappointing as compared to the same period last year, we believe that seasonal contributions from the biennial Singapore Airshow did create a higher basis for comparison. By maintaining their guidance of profit growth for the full year, management have implicitly guided for a strong set of 2HFY13 performance.
Investment Actions?
We expect a neutral stock reaction to the results and maintained our Accumulate rating and TP of S$4.50. With our assumption of a 90% dividend payout, we expect the stock of STE to yield an attractive 4.1% in FY13E.
SingPost – DBSV
A role model for mature businesses
- FY13 underlying profit of S$140.9m (+4.1% y-oy) was 3% ahead of our estimates on the back of better organic and inorganic growth.
- FY14 to benefit from full-year contribution of acquired companies. FY14/15 EPS raised 14%/19%
- Upgrade to BUY with revised TP of S$1.56 as we see significant growth in addition to 4.9% yield
All acquired companies are profitable. FY13 sales grew 14%, leading to a 4% growth in recurring earnings. About half of the top-line growth came from newly-acquired businesses while the other half was organic in nature. Novation Solutions was acquired in May 2012 and contributed sales of ~S$23m. General Storage Company and Famous Holdings were acquired in Feb 2013 and contributed aggregate sales of ~S$20m. FY14F will benefit from the full-year contribution of these companies, all of which are profitable, although Singpost has not disclosed its profit contribution yet.
Strong free cash generation supports dividends. Singpost has spent S$179m on acquisitions over the last two years to expand into the region. More than half of this amount has been funded by its free cash flow of S$160-170m versus S$119m of dividends commitments each year. Singpost aims to raise capex over the next three years, which may result in free cash flow matching dividends. With net cash of S$91m, there is ample room to fund new acquisitions to accelerate growth.
Superior growth, dividend yield and gearing metrics. Singpost offers high-single digit growth coupled with 4.9% yield, both of which are superior to telecom stocks under our coverage. We switch to DCF (WACC 6%, terminal growth 0%) to capture growth and our revised TP of S$1.56 implies potential returns of 26%.
STEng – Lim & Tan
- ST Engineering’s first quarter net profits came at S$134 million, posting a paltry loss of 0.3% y-o-y, which represents 22% of consensus full year forecast.
- The firm’s aerospace sector contributed positively to its bottom-line, with profitability growing 26% y-o-y due to encouraging sales mix, favourable foreign exchange impact and higher profits from associates.
- On the other hand, 1Q ’13 earnings contributions from its Electronics, and Marine sectors were only comparable to that of 1Q ’13, whereas its Land Systems sector profitability was lower (-9% y-o-y), due to unfavourable product mix and allowances for inventory obsolescence and doubtful debts. Absence of contribution from an associate with profit from Singapore Airshow 2012 also hurt performance.
- Nevertheless, its order book grew to S$13.0 billion, up from S$12.1 billion recorded in 4Q ’12.
- Management guided to achieve higher revenue and profits before tax for FY 2013, compared to FY 2012, and deliver S$3.6 billion of its order book within 2013.
MIIF – AmFraser
Maintain HOLD on limited capital upside
Divestment resolution approved. MIIF has obtained its shareholder approval for the proposed divestment of its 47.5% stake in Taiwan Broadband Communications (TBC) to Asian Pay Television Trust (APTT) on 30 April. Unitholders will be entitled to MIIF APTT units in proportion to the number of issued shares held as at the Record date of 9 May. The ex‐entitlement date falls on 7 May and APTT units are expected to commence trading on 29 May.
APTT has an indicative yield of 7.29‐8%. According to its preliminary prospectus, APTT’s initial public offering comprises 1.44bil units. The indicative price range was set between S$0.92 and S$1, representing a projected FY13 yield of 7.29‐8%.
Factoring in our assumption of a fair value yield of 7.5% for APTT, we estimate that MIIF would receive S$527.4mil from its divestment of TBC to APTT, or 45.85 cents per share. This represents a gain of 2.85 cents per share over TBC’s current book value of 43 cents per share.
Maintain HOLD. We raise our fair value to S$0.66 after factoring in our estimated divestment proceeds for MIIF. We have also adjusted our valuation model to assume a divestment timeframe of 3 years for the remaining assets Hua Nan Expressway and Changshu Xinghua Port. Our TP of S$0.66 represents a capital upside of only 7.2% over its last closing of S$0.615. Hence, we maintain our HOLD call on MIIF given the limited scope for capital appreciation.
Unitholders who wish to invest in APTT should remain vested in MIIF. We estimate that MIIF’s Unitholders would be entitled to around 472 shares in APTT for every 1000 shares they hold in MIIF. Assuming a theoretical ex-entitlement price of 21.4 cents, this translates into an overall cost of $401 for 472 shares in APTT. This is relatively lower than the cost of subscribing to the IPO of APTT directly or purchasing APTT’s shares on the open market, which is estimated to be around $459 on a yield of 7.5%. Moreover, we note that a direct purchase of APTT shares would incur additional transaction costs.
MIIF – AmFraser
Maintain HOLD on limited capital upside
Divestment resolution approved. MIIF has obtained its shareholder approval for the proposed divestment of its 47.5% stake in Taiwan Broadband Communications (TBC) to Asian Pay Television Trust (APTT) on 30 April. Unitholders will be entitled to MIIF APTT units in proportion to the number of issued shares held as at the Record date of 9 May. The ex‐entitlement date falls on 7 May and APTT units are expected to commence trading on 29 May.
APTT has an indicative yield of 7.29‐8%. According to its preliminary prospectus, APTT’s initial public offering comprises 1.44bil units. The indicative price range was set between S$0.92 and S$1, representing a projected FY13 yield of 7.29‐8%.
Factoring in our assumption of a fair value yield of 7.5% for APTT, we estimate that MIIF would receive S$527.4mil from its divestment of TBC to APTT, or 45.85 cents per share. This represents a gain of 2.85 cents per share over TBC’s current book value of 43 cents per share.
Maintain HOLD. We raise our fair value to S$0.66 after factoring in our estimated divestment proceeds for MIIF. We have also adjusted our valuation model to assume a divestment timeframe of 3 years for the remaining assets Hua Nan Expressway and Changshu Xinghua Port. Our TP of S$0.66 represents a capital upside of only 7.2% over its last closing of S$0.615. Hence, we maintain our HOLD call on MIIF given the limited scope for capital appreciation.
Unitholders who wish to invest in APTT should remain vested in MIIF. We estimate that MIIF’s Unitholders would be entitled to around 472 shares in APTT for every 1000 shares they hold in MIIF. Assuming a theoretical ex-entitlement price of 21.4 cents, this translates into an overall cost of $401 for 472 shares in APTT. This is relatively lower than the cost of subscribing to the IPO of APTT directly or purchasing APTT’s shares on the open market, which is estimated to be around $459 on a yield of 7.5%. Moreover, we note that a direct purchase of APTT shares would incur additional transaction costs.