Singapore Technologies Engineering (STE) reported 3Q13 results that missed ours and the street's expectations. While revenue grew 0.5% YoY to S$1.55b, PATMI fell 9.9% to S$131.4m. Highlights include: 1) lower gross profit from Aerospace and Land Systems; 2) an impairment of S$23.7m for ROPAX due to the prolonged softness in the shipping market in Europe, partially offset by a write-back of warranty provisions of S$14.4m that were no longer required; 3) an increase in net finance costs of S$5.1m (driven by a S$3m lower FX gain and a S$2.8m lower gain on disposal of investments). 9M13 EPS of 13.34 S cents formed only 66% and 68% of the street's and our prior FY13 forecast. We adjust our assumptions and cut our FY13F EPS to 18.0 S cents from 19.6 S cents. Using the same peg of 21x against FY14F EPS of 20.6 S cents (as opposed to FY13 EPS previously), our fair value rises to S$4.32 from S$4.11. Maintain HOLD on STE. FY14F dividend yield is 4.1%.
3Q13 below expectations
STE reported 3Q13 results that missed ours and the street's expectations. 9M13 EPS of 13.34 S cents formed only 66% and 68% of the street's and our prior FY13 forecast. While 3Q13 revenue grew 0.5% YoY to S$1.55b, PATMI fell 9.9% to S$131.4m. PBT margin for the group declined from 12% to 11%. Highlights include: 1) lower gross profit from Aerospace and Land Systems; 2) an impairment of S$23.7m for ROPAX due to the prolonged softness in the shipping market in Europe, partially offset by a write-back of warranty provisions of S$14.4m that were no longer required; 3) an increase in net finance costs of S$5.1m (driven by a S$3m lower FX gain and a S$2.8m lower gain on disposal of investments). STE's order book fell slightly from S$12.7b as of end Jun to S$12.5b, of which S$1.5b is expected to be delivered in 4Q13. Management indicated that the US government shutdown may indirectly push some milestone completions and contract wins from 4Q13 into 2014 due to slower approval of permits, etc.
Aerospace and Land Systems
Three of the four sectors registered higher revenue YoY in 3Q13: Aerospace (+1%), Electronics (+2%), Land Systems (-11%; all three business groups recorded lower revenue) and Marine (+25%). PBT for two of the sectors rose YoY: Aerospace (-6%; absence of a S$10.1m write-back of allowance for inventory obsolescence recognised in 3Q12), Electronics (+7%), Land Systems (-9%) and Marine (+12%).
Lower FY13 guidance
STE has lowered its FY guidance and now anticipates achieving comparable revenue and PBT for FY13 versus FY12 (as opposed to expecting higher revenue and PBT as it did previously).
Maintain HOLD
We adjust our assumptions and cut our FY13F EPS to 18.0 S cents from 19.6 S cents. Using the same peg of 21x against FY14F EPS of 20.6 S cents (as opposed to FY13 EPS previously), our fair value rises to S$4.32 from S$4.11. Maintain HOLD on STE. FY14F dividend yield is 4.1%.
STE reported 3Q13 results that missed ours and the street's expectations. 9M13 EPS of 13.34 S cents formed only 66% and 68% of the street's and our prior FY13 forecast. While 3Q13 revenue grew 0.5% YoY to S$1.55b, PATMI fell 9.9% to S$131.4m. PBT margin for the group declined from 12% to 11%. Highlights include: 1) lower gross profit from Aerospace and Land Systems; 2) an impairment of S$23.7m for ROPAX due to the prolonged softness in the shipping market in Europe, partially offset by a write-back of warranty provisions of S$14.4m that were no longer required; 3) an increase in net finance costs of S$5.1m (driven by a S$3m lower FX gain and a S$2.8m lower gain on disposal of investments). STE's order book fell slightly from S$12.7b as of end Jun to S$12.5b, of which S$1.5b is expected to be delivered in 4Q13. Management indicated that the US government shutdown may indirectly push some milestone completions and contract wins from 4Q13 into 2014 due to slower approval of permits, etc.
Aerospace and Land Systems
Three of the four sectors registered higher revenue YoY in 3Q13: Aerospace (+1%), Electronics (+2%), Land Systems (-11%; all three business groups recorded lower revenue) and Marine (+25%). PBT for two of the sectors rose YoY: Aerospace (-6%; absence of a S$10.1m write-back of allowance for inventory obsolescence recognised in 3Q12), Electronics (+7%), Land Systems (-9%) and Marine (+12%).
Lower FY13 guidance
STE has lowered its FY guidance and now anticipates achieving comparable revenue and PBT for FY13 versus FY12 (as opposed to expecting higher revenue and PBT as it did previously).
Maintain HOLD
We adjust our assumptions and cut our FY13F EPS to 18.0 S cents from 19.6 S cents. Using the same peg of 21x against FY14F EPS of 20.6 S cents (as opposed to FY13 EPS previously), our fair value rises to S$4.32 from S$4.11. Maintain HOLD on STE. FY14F dividend yield is 4.1%.
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