ST Engineering - OCBC Investment 2022-03-01: On The Path Of Recovery


ST Engineering - On The Path Of Recovery

  • Contract wins of S$11.7b in 2021, higher than past few years.
  • Robust order book of S$19.3b.
  • Moves to pay quarterly dividend; look forward to slightly higher dividend of S$0.16/share.

Cost savings and partial business recovery more than offset reduction in government support in 2021

  • ST Engineering (SGX:S63) reported a 9.3% increase in net profit to S$570.5m in FY21, on the back of a 7.5% rise in revenue to S$7.7b. Group EBIT grew 13% y-o-y to S$673.6m.
  • ST Engineering had guided in August 2021 that it expected a y-o-y reduction of S$150m in government support in 2021, and the impact of the reduction would mainly manifest in 2H21. In line with this guidance, the actual y-o-y reduction in government support was S$149m, with S$137m of the reduction impacting 2H21.
  • However, a combination of cost savings net of reinvestments in future growth areas and partial business recovery more than offset the reduction in government support. Excluding government support, ST Engineering's group EBIT for FY21 improved 93% y-o-y, reflecting a strong underlying performance amid continuing pandemic challenges.

Segmental updates

  • In terms of group revenue breakdown, Commercial Aerospace, Urban Solutions & Satcom and Defence & Public Security accounted for 32%, 15% and 53% respectively. Commercial sales was S$4.8b and defence sales was S$2.9b, which was in line with our expectation that defence related work is normally a third of the business.
  • Commercial aerospace saw a sharp recovery in EBIT from S$6m in 2H20 to S$79m in 2H21 from significant cost savings and partial business recovery, which more than offset the reduction in government support of S$51m.
  • For Urban Solutions & Satcom, 2H21 EBIT was S$15m compared to S$52m a year ago with lower government support, TransCore-related M&A expenses and semiconductor chip shortages.
  • The Satcom business also continues to be impacted by the pandemic with lower demand for satcom solutions in the aviation and maritime cruise customer segments.
  • As for Defence & Public Security, 2H21 EBIT remained largely the same from a year ago at S$224m.

Significant contract wins in 2021

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2022-03-01
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