ST Engineering - Maybank Kim Eng 2015-11-06: Cyclical Upturn Still Within Sight

ST Engineering SINGAPORE TECH ENGINEERING LTD S63.SI

ST Engineering - Cyclical Upturn Still Within Sight

3Q15 missed, with 9M15 at 68.8% of our FY15F.
Blamed on prolonged softness in aerospace & weak shipbuilding. Guidance cut to lower YoY PBT for 2015. We cut EPS by 11-16% for this & lower marine contributions.
TP down 6% to SGD3.60, based on 20x FY16 P/E (10-year average), in view of stronger FY17 growth expected. Maintain BUY for potential rebound in aircraft MRO work.

3Q15 net income of SGD133.3m (+9.9% YoY, +6.6% QoQ) missed, with 9M at just 68.8% of our FY15F.
Expectations of a stronger 2H15 did not materialise, attributed to prolonged softness in its aerospace MRO business and shipbuilding weakness.
Group order backlog dwindled to SGD12.2b from SGD12.4b in 2Q15.
Management cut its guidance and now expects 2015 PBT to be lower YoY, from its earlier guidance of a flat year and reiterates its intention for sustainable dividend payout of 75-80%.

We cut our FY15-17 EPS by 12%/16%/11% to reflect the above as well as lower marine contributions given a lack of new orders.
Margins have also been cut across the board as cost pressure persists.

While our new forecasts imply a smaller EPS rebound next year, we believe that a cyclical rebound in aircraft maintenance workload remains in the works.
Airlines are likely to increase capacity in response to lower oil prices and slow down their fleet retirement. These should drive a pick-up in maintenance workloads.
We shave our TP from SGD3.85 to SGD3.60, based on 20x FY16 EPS, the 10- year P/E mean.
This is in view of expectations for higher EPS growth in FY17.
Maintain BUY.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-11-06

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 3.60 Down 3.85