SingPost – OCBC
PROPERTY SPIN-OFF A BONUS; BUY FOR DEFENSIVENESS
- Recent listings highlight buoyant mood
- May be an opportune time
- But group is cash rich
Property spinoffs gathering pace, though mainly hospitality
With current high property prices in Singapore, an increasing number of companies have listed their property assets due to favourable valuations, though these have been mostly limited to hospitality assets so far this year.
SingPost is rich
Besides having a dominant presence in Singapore’s mail and logistics business which generates stable cash flows, SingPost also has a property portfolio that may bring in substantial cash when unlocked. The group has about 61 post offices and around half are owned by SingPost; about 14 of these are restricted in usage, leaving 16 or so potentially saleable. However, the jewel in its portfolio is the Singapore Post Centre (SPC) which is conveniently located near Paya Lebar MRT. We estimate that the SPC is worth S$765m based on its current mix of industrial, office and retail use, but the value may increase to about S$1.56b if the building is converted to full commercial use.
May be an opportune time, but no rush for group
The buoyant mood in Singapore’s property sector means that this could be an opportune time for SingPost to spin off some of its assets. The group may even receive an offer that is hard to resist. However, putting market sentiment aside, the group may not be in a rush to unlock value as it is currently cash-rich after issuing perpetual capital securities. The divestment of property would also result in a loss of rental income.
Spin-off a bonus; buy for its defensiveness
On a more fundamental level, we like the group for its stable operating cash flows given its non-cyclical business. Its consistent dividends (yield ~5.9%), strong balance sheet and dominant market position in its home country render it an attractive stock during an uncertain climate. Maintain BUY with our DDM-derived fair value estimate of S$1.14.
STEng – DBSV
Healthy earnings momentum
• 2Q12 net profit of S$143m (up 10% y-o-y) slightly ahead of our estimates; margin improvements across all segments
• Orderbook at record level of S$12.7bn underpins earnings visibility, going forward
• Maintain BUY with higher TP of S$3.60
Highlights
Another strong quarter. 2Q12 net profit of S$143m was slightly above our expectations of S$138m, even after adjusting for S$12.8m gains on the sale of investment property, which was largely offset by S$10m allowance for doubtful debts. Revenue was up 10% y-o-y and 7% q-o-q to S$1.57bn, driven largely by the Land Systems and Marine sectors. 1H12’s net profit of S$277.5m makes up 50% of our existing full-year estimates for FY12, which is ahead of usual seasonality.
Margin improvement across all sectors. Overall PBT margin improved sequentially to 12% in 2Q12 from 10.5% in 1Q12. Aerospace core PBT margin was strong at 15%, compared to 13% in 1Q12 and 13.5% in 2Q11, owing to a favourable sales mix (higher heavy maintenance sales). Shipbuilding margins in the Marine segment also improved, despite an unfavourable fair value change of embedded forex derivatives in the S$880m Oman navy contract, which is denominated in Euros.
Our View
Record orderbook provides healthy earnings visibility. STE won close to an estimated S$2bn worth of new orders in 2Q12, as its orderbook expanded to record level of S$12.7bn at end-2Q12 from S$12.2bn at end-1Q12. About S$2.5bn of its orderbook will be recognised in 2H12.
Recommendation
Maintain BUY. Despite some acquisitions-related hiccups in the recent past, STE’s growth trajectory seems to be on track, driven by healthy order-win momentum and improvement in margins. We revise upwards our FY12/13F earnings estimates marginally by about 1-1.2% to account for the above. Operating cash flows in 1H12 remained strong, driven by higher customer deposits, in line with healthy order wins. Interim dividend of 3Scts was declared, at par with 1H11 levels. Given visible earnings growth, strong balance sheet and healthy dividend yield of 5%, we maintain our BUY call. Our TP, which is based on the blended valuation methodology, is revised upwards to S$3.60 as our PE multiple is revised upwards to 18x to reflect mid-cycle valuations.
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.