OCBC Investment Research 2015-07-16: ST Engineering - Secures S$920m of aerospace contracts in 2Q15. Maintain HOLD.

ST Engineering: Secures S$920m of aerospace contracts in 2Q15 

  • Aerospace still adding orders 
  • Share buybacks done around S$3.27 
  • Decent yield of 4.4%  

S$920m worth of aerospace deals clinched

  • ST Engineering (STE) recently reported that it has secured new contracts worth S$920m of aerospace contracts in 2Q15. 
  • These new orders include projects ranging from airframe, component and engine maintenance, to engine wash and pilot training. 
  • Among the notables include the S$472m engine maintenance contract from Jet Airways and the S$135m component maintenance-by-the-hour contract from Flybe. 
  • Recall that STE previously reported an order book of S$12.2b during its 1Q15 results briefing, of which it will be looking to deliver some S$3.0b in 2015. 

Saw 12% fall in price after muted 1H15 outlook 

  • Separately, STE saw its share price tumbling nearly 12% from a previous S$3.66 peak to a recent S$3.23 low, after guiding for a muted 1H15 outlook; this as it expects 1H15 revenue to be comparable, while PBT is expected to decline against 1H14. 
  • For the full-year, management has kept its comparable guidance for both revenue and PBT, suggesting it expects a better showing in 2H15. 

Engaging in share buybacks 

  • But even after the recent tumble, we note that valuations are just “fair”, given the still muted outlook for the Marine sector in general. For example, STE is currently trading around 12.3x EV/EBITDA, almost in line with the 5-year average of 12.4x. 
  • It is also around 18.7x consensus FY15F EPS, versus our own 19x valuation. 
  • Nevertheless, further downside may be limited, given that the company has embarked on a share buyback program. 
  • To date, it has bought back around 1.6m shares at an average of S$3.27; this is just 3% out of an allowable 62.2m shares. 

Maintain HOLD for now 

  • With 2Q15 results likely due around 13 Aug (going by last year’s date), we opt to hold off making any adjustments to our forecasts – note that 1Q15 numbers were also in line with our forecasts. 
  • Still, the expected dividend yield of 4.4% for FY15 is relatively decent in our view, hence we maintain our HOLD on the stock with an unchanged S$3.33 fair value

(Carey Wong)

Source: http://www.ocbcresearch.com/