OCBC Investment 2015-08-14: ST Engineering - 2Q15 Results Within Forecast.

SINGAPORE TECH ENGINEERING LTD S63.SI

2Q15 Results Within Forecast 

 1H NPAT met 47% of forecast
 2H to be better than 1H
 Decent yield of 4.6%


2Q15 results within forecast

  • STE saw 2Q15 revenue slipping 2.6% YoY to S$1545.1m, mainly due to lower Marine revenue; but mitigated by higher revenue from Electronics and Land Systems sector. Reported net profit fell 6.1% to S$125.0m, but we estimate that core earnings (excluding forex and other one-off items) fell by a smaller 4.9% to S$135.3m. STE declared an interim dividend of S$0.05/share (ex-date: 19 Aug) versus S$0.04 the same period last year. 
  • Going forward, STE expects 2H15 revenue and PBT to be higher than 1H15 and FY15 revenue and PBT to be comparable to FY14. As we also expect pretty flat earnings growth in FY16, our fair value remains unchanged at S$3.33 even as we roll forward our 19x peg to blended FY15/FY16F EPS. 
  • Maintain HOLD, supported by a pretty decent 4.6% dividend yield. 


PBT improvement in Marine sector 

  • The Marine sector continued to see lower revenue in 2Q15, dropping by a larger 27% YoY (also down 9% QoQ) to S$253.9m, mainly due to lower Shipbuilding revenue from both local and US operations and lower Engineering revenue. But its PBT actually improved by 20% YoY (+27% QoQ) to S$29.6m, due to higher gross profit from better shipbuilding performance. 
  • On the other hand, Land Systems saw its PBT drop 11% YoY (flat QoQ) to S$16.3m, mainly affected by higher allowance for inventory obsolescence and goodwill impairment, despite the 8% YoY (-8% QoQ) rise in revenue. 


Keeping FY guidance unchanged for now 

  • Going forward, STE expects 2H15 revenue and PBT to be higher than 1H15. Specifically, Aerospace should see comparable 2H15 revenue and PBT versus 1H15; Electronics revenue and PBT to be higher HoH; Land Systems should see higher revenue but comparable PBT; Marine revenue and PBT are both likely to be lower HoH. 
  • But for the full year, STE still expects revenue and PBT to be comparable to FY14. This is not surprising given its current order book of S$12.4b (as of end Jun), of which it expects to deliver about S$2.3b in the remaining months of 2015. 


Maintain HOLD with S$3.33 fair value

  • As we also expect pretty flat earnings growth in FY16, our fair value remains unchanged at S$3.33 even as we roll forward our 19x peg to blended FY15/FY16F EPS. 
  • Maintain HOLD, supported by a pretty decent 4.6% dividend yield.


Carey Wong | http://www.ocbcresearch.com/ OCBC Investment Research 2015-08-14
HOLD Maintain HOLD 3.33 Same 3.33


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