ST Engineering - OCBC Investment 2016-08-15: Better 1H16 PBT; Eyes Lower 2H PBT

ST Engineering - OCBC Investment 2016-08-15: BETTER 1H16 PBT; EYES LOWER 2H PBT SINGAPORE TECH ENGINEERING LTD S63.SI

ST Engineering - BETTER 1H16 PBT; EYES LOWER 2H PBT

  • More muted 2H outlook.
  • Now guides for lower FY16 PBT.
  • Re-engage closer to S$2.90 or better. 


Better-than-guided 1H16 PBT 

  • Singapore Technologies Engineering (STE) reported its 2Q16 revenue of S$1623.3m, +5.1% YoY, where higher revenues from Aerospace and Electronics sectors were partially offset by lower revenues from Land Systems and "Others”; Marine reported comparable revenue.
  • Group PBT came in at S$170.3m, +11.8% YoY, aided by higher PBT from Electronics and Land Systems segments but were mitigated by lower PBT from Marine. Aerospace recorded comparable PBT while “Others" saw lower loss. PATMI inched up 1.8% YoY to S$127.3m. 
  • All in, 1H16 revenue grew 6.3% to S$3250.4m, meeting 49% of our fullyear forecast, while PBT came in at S$300.7m, down 2.7%, which STE deemed to be "comparable" versus its guidance of a lower PBT (>5% drop). PATMI fell 6.9% to S$237.5m, meeting 45% of our FY16 estimate. 
  • STE has declared an interim dividend of S$0.05/share, unchanged from 1H15.


Eyes more muted 2H16 

  • Going forward, STE expects 2H16 revenue to be higher, while PBT is expected to be lower than that of 1H16. Specifically, STE is guiding for Aerospace revenue to be higher but lower PBT; Electronics revenue and PBT to both be higher; Land Systems revenue to be comparable but lower PBT; Marine revenue to be lower but higher PBT. 
  • All in, a pretty mixed bag, hence it has also lowered its guidance for FY16’s PBT to be lower despite higher revenue.


Downgrading to HOLD with lower S$3.13 

  • Having said that, management notes that the group has continued to secure new orders and it has ended the quarter with a healthy order book of S$11.6b. It will be delivering S$2.5b worth of orders in 2H16.
  • STE adds that its cash balance stands at S$1.3b as of end-Jun, albeit a tad lower than the S$1.5b as of end-Mar. 
  • Nevertheless, we will be paring our FY16 earnings by 8% and FY17 earnings by 6%. Hence even as we push out our 19x peg to FY17F EPS, our fair value drops from S$3.24 to S$3.13 and we downgrade our call to HOLD for now; re-engage closer to S$2.90 or better.




Carey Wong OCBC Investment | http://www.ocbcresearch.com/ 2016-08-15
OCBC Investment SGX Stock Analyst Report HOLD Downgrade BUY 3.13 Down 3.240


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