ST Engineering - OCBC Investment 2018-11-14: Well-placed For Long Term Growth


ST Engineering - Well-placed For Long Term Growth

  • STE's 5.3% y-o-y rise in net profit in 3Q.
  • Continues to secure new orders.
  • At least S$1.6b rev for 4Q.

Healthy set of 3Q18 results 

  • Singapore Technologies Engineering (STE) reported a 1% y-o-y rise in revenue to S$1.6b and a 5.3% increase in net profit to S$134.6m in 3Q18, bringing 9M18 net profit to S$369.8m or 70% of our full year figure.
  • Results were slightly above our expectations – as a reference, 9M17 net profit accounted for 65% of the full year figure.
  • Indeed, the group ended 9M18 with an order book of S$13.3b, of which S$1.6b will be delivered in the remaining months of 2018, meaning that at least S$1.6b of revenue is secured for the upcoming 4Q. 

Net profit up y-o-y for all except marine 

  • On a segmental basis, both revenue and net profit for Aerospace grew 13% y-o-y to S$689m and S$55.4m respectively in 3Q18, led by broad-based growth across business units. Revenue for Electronics was 2% higher at S$491m, while net profit rose 30% to S$55.5m largely due to higher revenue and lower operating expenses.
  • Despite a 10% drop in revenue to S$297m, net profit for Land Systems came in 45% y-o-y higher at S$17.6m due to favourable sales mix.
  • Marine posted a 16% drop in revenue to S$137m, and a 35% fall in net profit to S$12.8m with challenging market conditions. 

Continues to secure new orders 

  • For 3Q18, commercial sales accounted for 73% of revenue while defence sales constituted the remaining 27%.
  • In the quarter, Aerospace secured S$590m worth of contracts including several multi-year agreements for airframe, engine and component maintenance and engine wash services, while Electronics announced S$435m of new orders in Smart City related projects including mobility, satellite communications, IoT and cybersecurity. Land Systems secured contracts including the supply of a fleet of 111 Euro 6 diesel buses to the LTA, and new orders for its weapon & munitions from global customers.
  • Finally, Marine also secured contracts (including options) worth about S$431m for newbuilds as well as ship and rig repair works.
  • Looking ahead, STE continues to be well-placed to deliver long-term sustainable growth. We maintain our Fair Value estimate of S$3.95 on the stock. 

Low Pei Han OCBC Investment Research | https://www.iocbc.com/ 2018-11-14
SGX Stock Analyst Report BUY MAINTAIN BUY 3.950 SAME 3.950