SINGAPORE TECH ENGINEERING LTD (SGX:S63)
ST Engineering - Core Business Remains Strong
- Continues to secure contracts.
- Record high order book of S$15.9b.
- Clear outperformer, but upside may be diminishing.
12% y-o-y rise in 3Q19 core net profit
- ST ENGINEERING (SGX:S63) posted a 27% y-o-y rise in revenue to S$2.1b and a 3% increase in net profit to S$139.1m in 3Q19. See ST Engineering Announcements.
- Excluding the provision of S$14.2m before tax made for the arbitration outcome with Hornbeck Offshore Services as announced on 23 Oct 2019, the group’s net profit would have been up 12% y-o-y at S$150.3m. 9M19 net profit would have been S$419.4m, accounting for 72% of our earlier full year estimate.
Aerospace the outperformer, supported by MRAS
- On a segmental basis, ST Engineering's net profit in the
- Aerospace division rose 17% y-o-y to S$65.0m;
- Electronics was down 7% at S$51.5m largely due to increased investments in new growth areas;
- Land Systems was 14% lower at S$15.1m with the absence of a favourable tax credit in the prior year, while
- Marine’s net profit would have been 14% higher at S$14.6m should the amount for the arbitration outcome be excluded.
Continues to secure contracts
- ST Engineering announced a total of S$1.8b worth of new contracts in 3Q19, of which S$1.0b was from the Aerospace sector for a spectrum of aviation manufacturing and services including multi-year MRO agreements for both defence and commercial customers, engine nacelle component and floor panel manufacturing.
- Out of S$1.8b, S$833m was from the Electronics sector, received from global customers for satellite communications, mobility, public safety and security, Internet of Things, training and simulation, cybersecurity and defence solutions.
ST Engineering a clear outperformer
- On a total returns basis, ST Engineering has outperformed the STI by a wide margin YTD, with the reinvested total return for ST Engineering at 22.7% and 10.4% for the STI, based on 8 Nov closing prices. See Straits Times Index (STI) Constituents Share Price Performance.
- 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$15.9b as at end Sep 2019, of which S$2.2b is expected to be delivered in 4Q19.
- We maintain our fair value estimate of S$4.64 on ST Engineering. See ST Engineering Share Price; ST Engineering Target Price.
OCBC Research Team
OCBC Investment Research
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https://www.iocbc.com/
2019-11-11
SGX Stock
Analyst Report
4.640
SAME
4.640
