ST Engineering

Kim Eng on 15 Aug 2012

2Q2012 in line; SGD 3.0 cts/sh interim dividend declared. ST Engineering (STE) reported 2Q2012 NPATMI of SGD143.1m, a 10% increase YoY on the back of revenues that grew 6%. Results were in line with our expectations, as 1H2012 Revenue and NPATMI comprised 49% and 48% of our FY2012 estimates respectively. An interim dividend of SG 3.0 cts/sh was declared, payable on 13 Sep.

Record order book at SGD12.7b. Commercial sales in 2Q2012 comprised 65% or SGD1.0b of revenue (2011: 59%). Bearing in mind that ~SGD1.6b of revenue was recognised this quarter, the increase of SGD0.5b in STE’s order book from 1Q2012 to a record SGD12.7b in 2Q2012 was commendable.

Aerospace remains key. From a profitability standpoint, the aerospace segment led the way with a 20% growth in PBT YoY (+SGD13.5m), although growth would have been a more moderate +10% if a SGD7m gain on disposal of property were excluded. Other profit growth segments of note were ST Electronics (+SGD6.1m, +17% YoY) and ST Marine (+SGD3.1m, +11% YoY).

Outlook remains positive. Management guided that the group expects to achieve higher revenue and comparable PBT in 2H2012 (vs 1H2012). ST Aerospace is expected once again to lead the way with higher revenue and PBT in 2H2012 compared to 1H2012. It expects to continue its development of aircraft interior modification and completion centre capabilities for 2H2012, together with the commencement of hangar construction at its Guangzhou and Seletar facilities.

Maintain BUY on earnings visibility. We maintain our forecasts and roll forward our 19x P/E valuation to FY2013 EPS, raising our Target Price to SGD3.78. STE’s record order book of SGD12.7b gives evidence of its momentum in contract wins, and provides clear earnings visibility which in turn supports attractive forward dividend yields of 5- 6%. Maintain BUY.