ST Engineering - OCBC Investment 2019-08-14: Proudly Flying The Flag

SINGAPORE TECH ENGINEERING LTD (SGX:S63) | SGinvestors.io SINGAPORE TECH ENGINEERING LTD (SGX:S63)

ST Engineering - Proudly Flying The Flag

  • Defence sales about a third.
  • Record high order book.
  • Clear outperformer.



18% y-o-y rise in 2Q19 net profit

  • ST Engineering (SGX:S63) posted an 8% y-o-y rise in revenue and an 18% increase in net profit to S$138.2m in 1H19, such that results were within expectations.
  • Newly acquired MRAS was consolidated from 18 Apr as part of the Aerospace business group, while commercial sales and defence sales constituted 71% and 29% of the group’s 2Q19 revenue, respectively.


Stellar showing from Marine

  • Aerospace’s net profit of S$64.2m in 2Q was 4% lower y-o-y mainly due to the non-recurrence of gain from portfolio rationalization, sale of engines and absence of contribution from Jet Airways, partially offset by contribution from MRAS.
  • Electronics’ net profit fell 5% y-o-y to S$44.3m due to timing in revenue recognition of projects and higher selling and distribution expenses as a result of increased sales activities to support international expansion.
  • As for Land Systems, net profit of S$20.3m was flat as compared to a year ago, despite higher revenue. This was mainly due to less favourable sales mix and higher operating expenses from the robotics business.
  • The stellar performer in the quarter was Marine, as its net profit rose 55% to S$14.3m in the quarter due to improved U.S. shipbuilding performance and higher revenue from the Engineering segment.


STE a clear outperformer

  • YTD, ST Engineering’s share price is up 20.9%, outperforming the broader market by a wide margin; the STI is up 2.4%, based on closing prices on 14 Aug.
  • ST Engineering has been a preferred pick and remains so, given its relatively defensive nature and potential growth. The group has achieved a record high order book of S$15.6b as at end Jun 2019, of which S$3.8b is expected to be delivered in 2H19.
  • In line with its usual practice, the group has declared an interim dividend of S$0.05/share. See ST Engineering's dividend history.
  • We are optimistic of ST Engineering’s longer term prospects and raise our terminal growth rate from 2.0% to 2.25% in our DCF valuation, such that our fair value estimate rises from S$4.38 to S$4.64.





OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-08-14
SGX Stock Analyst Report BUY MAINTAIN BUY 4.64 UP 4.380



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