Thursday, 14 August 2014

ST Engineering

Kim Eng on 13 Aug 2014

  • 2Q14 dragged down by Marine and Land Systems.
  • Lowers guidance to comparable profits in FY14.
  • Maintain HOLD with TP lowered to SGD3.50 from SGD4, pegged at 19x FY15E P/E.
Marine and Land Systems weak
2Q14 net income of SGD133.2m (-10.0% YoY) was dragged down by poor Marine and Land Systems performances. Despite strong shipbuilding sales, Marine reeled from execution issues in the US. Lower vehicle deliveries hurt sales and profitability at Land Systems. Its key Aerospace division was equally unexciting, with sharply lower profits from its components, engine repair & overhaul business. Interim DPS raised to SGD0.04 (1H13: SGD0.03), but guidance for a 75% payout is unchanged. Outlook lowered to comparable sales and PBT for FY14E, down from higher sales and
PBT earlier.

Could remain soft on Aerospace slowdown
We cut our EPS by 10%/14%/3% for FY14E-16E to reflect 1H14’s weakness and muted guidance. We factor in a decline for Aerospace on expectations of a near-term MRO slowdown. Improved engine reliability and stagnating heavy airframe maintenance sales appear to be recurring trends across the industry. While STE should be less affected by the regional aviation slowdown than its pure-play counterparts, weakness at its key Aerospace division should still hurt its near-term prospects. Our TP drops to SGD3.50 from SGD4.00 as we roll over to 19x FY15E P/E, in line with its 10-year average. Dividend payouts look set to decline as the company retains cash abroad (mainly the US) for expansion and to avoid paying withholding tax by repatriating cash to Singapore. We model in a lower DPS of 13.5 SGD cts for FY14E, representing a 75% payout. Maintain HOLD.

No comments:

Post a Comment