ST Engineering - DBS Research 2016-02-29: Steady dividend outlook

ST Engineering - DBS Research 2016-02-29: Steady dividend outlook ST Engineering SINGAPORE TECH ENGINEERING LTD S63.SI 

ST Engineering - Steady dividend outlook 

  • 4Q15 results were within expectations 
  • Orderbook remains healthy at S$11.7bn 
  • Smart nation projects will be a growth driver 
  • Dividend yield attractive at 5.3% 

FY15 net profit of S$529m was within our expectations, and largely flattish y-o-y. 

  • Group revenues were down 3.1% y-o-y from S$6.54bn to S$6.33bn, largely a result of lower Marine segment revenues. 
  • Electronics division was the star performer as far as revenues were concerned, with an 8% increase. 
  • Overall PBT margin for the Group remained stable at 10%. 

Electronics and Aerospace are key growth drivers. 

  • Although it lost out recently on the next-generation ERP project, the Electronics division is well positioned to benefit from other Smart Nation projects in Singapore, going forward. 
  • Additionally, recent focus on space-related technology and robotics hold promise as longer-term growth drivers for the company. 
  • Targeted new investments in Aerospace division also provide potential upside in the medium-term. 

Management expects higher revenues and comparable PBT in FY16 with respect to FY15. 

  • The group’s orderbook of S$11.7bn remains relatively stable and covers slightly less than two years of revenue, securing decent visibility going forward, despite a slowdown in Marine and Land division orders in 2015. 
  • We believe STE will be able to maintain steady earnings and dividends in the near term, and maintain its status as a safe haven dividend play amidst volatile market conditions. 

Valuation: 

  • We cut FY16/17 earnings by 2% each on the back of a slight decline in orderbook levels but maintain our BUY call with TP of S$3.40, based on a blended valuation framework to factor both earnings growth and cash-generative nature of the business. 

Key Risks to Our View: 

  • The structural changes facing the aircraft MRO industry could hit harder than expected, as newer airframe and engines reduce maintenance spend and lengthen the cycle for checks and OEMs take a larger share of the aftermarket services. 
  • Also, continued lack of action on the M&A front could lead to inefficient use of balance sheet and lower ROEs in the future.



Suvro SARKAR DBS Vickers | http://www.dbsvickers.com/ 2016-02-29
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 3.40 Down 3.60


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