SINGAPORE TECH ENGINEERING LTD (SGX:S63)
ST Engineering - Aerospace & Electronics Hit By Covid-19
- The Covid-19 outbreak has affected ST Engineering (SGX:S63) in terms of reduced customer demand, supply chain issues as well as workforce disruption.
- However diversification of business, government support and robust order book of S$16.3bn helped. ST Engineering projects FY20F revenue to fall 5-15% y-o-y.
- The worst case of a 15% fall brings revenue to S$6.68bn; base case: S$7.47bn. Our estimate is a 3% y-o-y dip (S$7.638bn). Market: c.S$8bn.
Lower activities in aerospace
- The division is in active discussions with customers on rescheduling.
- MRAS has reduced A320 nacelle and spare sales.
- EFW has reduced production of flat panel shipsets; PTF conversion kits also faced supply chain challenges.
Electronics tenders and project milestones delayed
- The division has seen delays in project milestones and delivery schedules.
- Some tenders have been put on hold and certain satellite communication customers (aviation, maritime and oil and gas segments) are reducing demand.
- There was also an increase in cost due to supply chain disruption.
Land systems defence projects helped; marine shifted to the right
- The defence land platform business is steady but there were delays in some defence exports, e.g. 40mm munitions. Some projects were also deferred, e.g. EV bus.
- Marine’s completion of programmes for shipbuilding and environmental engineering projects were shifted to the right. Some ship repair works were also impacted by workforce disruption. Potential new projects will be deferred.
Order book up to S$16.3bn; revenue guidance toned down
- ST Engineering secured S$1.6bn of new contracts (S$838m aerospace, S$730m electronics) in 1Q20, bringing the order book to S$16.3bn (up from S$15.3bn at end of 2019). S$4.5bn will be delivered in the remaining months of 2020.
- ST Engineering expects FY20F revenue to fall 5-15%. The worst case of a 15% decline brings revenue to S$6.68bn; the base case is S$7.47bn. Our assumption was a 3% y-o-y dip (S$7.638bn). The market forecasts c.S$8bn.
Maintain ADD and Target Price of S$3.86
- Our Target Price is derived from blended valuations of 18x CY21F earnings, DCF and dividend yield. Given the toned down guidance, we expect ST Engineering share price to be weakened in the short term.
- See ST Engineering Share Price; ST Engineering Target Price; ST Engineering Analyst Reports; ST Engineering Dividend History; ST Engineering Announcements; ST Engineering Latest News.
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LIM Siew Khee
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-05-15
SGX Stock
Analyst Report
3.860
SAME
3.860
