SINGAPORE TECH ENGINEERING LTD (SGX:S63)
ST Engineering - 1H20 Results In Line With Expectations; Stay BUY
- We reiterate our positive view on ST Engineering – we remain optimistic on 2021F earnings growth, which should be aided by the normalisation of order deliveries across all segments (excluding Aerospace).
- ST Engineering’s strong revenue visibility amidst high orderbook, low near-term earnings volatility amidst a well-diversified business model; ability to sustain dividends despite weak 2020 profit; and below average valuation supports our call on the stock.
- Reiterate BUY on ST Engineering with SGD3.90 Target Price, 15% upside and c.4% yield.
ST Engineering's 1H20 results ticked all the right boxes.
- ST Engineering (SGX:S63) reported SGD3.6bn of revenue (+2% y-o-y – 51% of our estimate) and SGD257m of net profit (-4% y-o-y – 49% of our estimate). Revenue from its recently acquired businesses offset the weakness in existing Aerospace and Electronics businesses.
- On the cost front, the COVID-19 government relief and cost reduction initiatives offset the impairments to intangibles assets and receivables. As expected, the company announced an interim DPS of 5 SG cents (unchanged y-o-y).
Government support on wages extended to 1Q21, still need to focus on cost reduction.
- ST Engineering had estimated to accrue c.50% of the earlier announced Government grants under the Job Support Scheme (JSS) in 2H20. However, the Singapore Government announced yesterday that JSS will be extended for seven more months and the Aerospace sector will now get 50% support for wages paid up to Mar 2021.
- Nevertheless, the company may still have to focus on cost reduction initiatives for 2021F if its orderbook delivery does not improve significantly by 1Q21.
Should be able to sustain dividends for 2020.
- We maintain that despite expectations of an earnings decline in 2020F, ST Engineering will likely sustain an unchanged DPS of 15 SG cents from 2019 for 2020F as well compared to that of other large-cap companies in Singapore, which should see lower dividends. See ST Engineering Dividend History. The company mentioned that it has adequate funds from past years’ retained earnings to support 2020 dividend payment.
Trading below average valuation despite growth expectations.
- Based on 2021F earnings, ST Engineering is trading slightly below its 10-year average P/E of 19x. Given expectations of a strong earnings recovery in 2021F, high revenue visibility and sustainable dividend outlook, we believe it will trade above its historical average.
- See ST Engineering Share Price; ST Engineering Target Price; ST Engineering Analyst Reports; ST Engineering Dividend History; ST Engineering Announcements; ST Engineering Latest News.
Key risks.
- Slower recovery in order book delivery, lower contributions from new acquisitions, and delays in Singapore’s Smart Nation initiative.
Shekhar Jaiswal
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-08-18
SGX Stock
Analyst Report
3.900
SAME
3.900
