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

SINGAPORE TECH ENGINEERING LTD (SGX:S63)

ST Engineering - Proudly Flying The Flag

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.

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.

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