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