ST Engineering - OCBC Investment 2018-02-26: Sanguine Outlook Driven By Multiple Growth Drivers

ST Engineering - OCBC Investment 2018-02-26: Sanguine Outlook Driven By Multiple Growth Drivers SINGAPORE TECH ENGINEERING LTD S63.SI

ST Engineering - Sanguine Outlook Driven By Multiple Growth Drivers

  • FY17 above our expectations.
  • To foray into healthcare and medical segment.
  • Healthy order book of S$13.2b 

Group blended PBT margin stayed stable in FY17.

  • Singapore Technologies Engineering’s (STE) FY17 revenue fell 1.0% y-o-y to S$6619.5m, as growth at Aerospace (+2%) and Electronics (+12%) sectors were offset by decline in Land Systems (-11%) and Marine (-24%) sectors.
  • However, group PBT rose 5.5% to S$623.3m, mainly due to absence of an S$61.1m one-off charge incurred for China Specialty Vehicle business under Land Systems sector, but offset by weak Marine (-70%) sector on higher costs incurred in executing for the LNG-powered Container Roll-on/Roll-off (ConRo) programme.
  • And in 4QFY17, STE recorded a favourable impact from the re-measurement of deferred tax balances due to US tax reform, largely arising from the Land Systems sector. Consequently, stripping out non-recurring items, FY17 core PATMI fell 8.1% to S$491.9m but came in above our expectations as it formed 110% of our FY17 forecast.

All but marine sector to support growth in FY18 

  • Looking ahead, STE remains well positioned for growth, supported by a healthy order book of S$13.2b. By sectors:
    1. Aerospace will be a key growth driver as it continues to gain momentum from its A330 and A320 passenger-to-freighter (PTF) conversion programmes, higher aircraft engine workshop visits and productivity improvement,
    2. the focus on the expansive smart city offerings will provide growth for Electronics and Land systems (autonomous vehicles and robotics) sectors in Singapore and overseas, and
    3. the continuous push to deploy robotics solutions to improve efficiency in the healthcare and hospitality segments beyond U.S. (e.g. Aethon’s TUG robots already deployed in 140 hospitals in the U.S.). STE is also setting up a new team on a full-time basis dedicated to focus on and look for opportunities to grow its presence in the healthcare and medical segment.
  • We believe its Marine sector’s expected weakness will be more than offset by other sectors.

Unchanged Fair Value of S$4.00 

  • All considered, we continue to like STE as we believe the ability of STE’s different sectors to draw strength upon each other’s capabilities to offer solutions in the areas of defence and smart city solutions is a strong enabler for long-term growth.
  • (Maintain BUY)

Eugene Chua OCBC Investment | http://www.iocbc.com/ 2018-02-26
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 4.000 Same 4.000