SINGAPORE TECH ENGINEERING LTD
S63.SI
ST Engineering (STE SP) - 2Q16: Lowers Guidance From Comparable PBT To Lower PBT
- Excluding S$10m in gains from the disposal of a Chinese subsidiary, core net profit would have declined by 6.5% yoy.
- 1H16 core earnings amount to 45% and 44% of our and consensus full-year net profit respectively.
- Given 2H tends to be seasonally stronger, 1H16 earnings were broadly in line. However, STE has revised down its guidance for 2016 PBT from comparable to lower.
- We will provide further details after attending the analyst briefing on 15 August (Monday).
RESULTS
Top-line growth did not filter into bottom-line on weak Marine and Land Systems performance.
- ST Kinetics recognised approximately S$10m in gains from the disposal of a Chinese subsidiary. Excluding that, ST Engineering’s (STE) 2Q16 earnings would have declined by 6.5% yoy.
- Core 1H16 earnings amount to 45% and 44% of our and consensus full-year estimates.
- Given that 2H tends to be seasonally stronger, 1H16 earnings were broadly in line. ST Kinetics also wrote-back an earlier S$3.8m in provisions for obsolescence.
- Orderbook stood at S$11.6b in 2Q16 (vs 1Q16: S$11.5b). STE has revised down its guidance for the full year from comparable PBT for 2016 to lower PBT.
- STE also declared an interim dividend of 5 S cents, unchanged from the previous year.
Aerospace PBT rose 5% yoy on the back of a 20% rise in revenue.
- The acquisition of a subsidiary led to a S$113m rise in revenue for the Engineering & Material Services (EMS) segment. This resulted in a 32% rise in PBT for the EMS sector. However, airframe maintenance revenue declined 9% yoy while PBT rose 11% yoy in 2Q16.
- Meanwhile, the DHL Express A330 passenger-to-freighter (PTF) contract is expected to contribute in 2H16. STE also guided for lower hoh profitability for the division in 2H16.
The Marine division PBT fell 31% yoy but improved qoq, due to lower declines at the shipbuilding segment.
- However, this could be due to non commercial deliveries.
- STE also guided that the Marine division is expected show an improvement in 2H16 compared to 1H16.
Electronics PBT rose 10% yoy, led by a 33% rise in PBT for the Communication & Sensor Systems Group (CSG) segment.
- STE attributed the growth in CSG to increased sales of satellite communication products, as well as milestone completions of higher value contracts. STE also guided for a stronger 2H16 for the Electronics division compared with 1H16.
- Excluding the divestment gains and writeback in provisions, Land Systems PBT would have declined 17% yoy. STE also guided for lower hoh PBT in 2H16 for the division.
STOCK IMPACT
- STE will host an analyst briefing on 15 August (Monday) and we would seek clarification on the following:
- For the Land Systems division – the likelihood of further provisions in the near to medium term and the extent of the provisions,
- The strategy and future plans for the Land Systems division in China with the disposal of automotive subsidiary Guizhou Jonyang Kinetics (GJK),
- The reason for the decline in AMM revenue for the Aerospace sector,
- Further details on the expected improvement in 2H16 PBT for Marine.
EARNINGS REVISION/RISK
- No change to our earnings estimates pending the analyst briefing.
VALUATION/RECOMMENDATION
- We place our BUY recommendation and target price under review. We will provide further updates after the analyst briefing.
SHARE PRICE CATALYST
- More contract wins.
K Ajith
UOB Kay Hian
|
Sophie Leong
UOB Kay Hian
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http://research.uobkayhian.com/
2016-08-15
UOB Kay Hian
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