ST Engineering

OCBC on 15 Aug 2012

ST Engineering (STE) posted 2Q12/1H12 results that were generally in line with expectations. 1H12 EPS of 9.05 S cents formed 50% of ours and consensus' estimate for FY12. STE's 2Q12 revenue climbed by 6% YoY to S$1.57b and PATMI rose by 10% YoY to S$143.1m. All sectors apart from Aerospace posted higher revenues, and all sectors contributed higher pre-tax profits. STE's order book grew from S$12.2b to S$12.7b between end Mar and end Jun 2012. The size of the 2Q12 order book compares even more favourably to 2Q11's order book of S$10.8b. We maintain our fair value estimate of S$3.50/share and BUY rating on STE.

Solid 2Q12 performance
ST Engineering (STE) posted 2Q12/1H12 results that were generally in line with consensus and our estimates. 1H12 EPS of 9.05 S cents formed 50% of ours and consensus' estimates for FY12. STE's 2Q12 revenue climbed by 6% YoY to S$1.57b and PATMI rose by 10% YoY to S$143.1m. All sectors, apart from Aerospace, posted higher revenues, and all sectors contributed higher pre-tax profits.

Generally healthy performance for sectors
While the Aerospace sector saw revenue declined 2% YoY to S$493m, partially due to unfavourable Euro translation and lower revenue from the engines division, its pre-tax profit increased 20% YoY to S$81.6m with improved EBITDA and a S$7.0m gain on the disposal of a property. Electronics performed well, registering a 2Q12 revenue increase of 9% to S$348m and a pre-tax profit increase of 17% YoY to S$41.8m, on the back of a favourable sales mix. Land Systems saw revenue and pre-tax profit climbed 11% and 6% YoY to S$389m and S$32.0m respectively; the latter included a S$5.8m gain on the disposal of a property. Land System's EBITDA had fallen 12% YoY to S$33.5m due to an unfavourable product mix and higher operating expenses. Higher shipbuilding revenue helped to boost the Marine sector's 2Q12 revenue by 7% YoY to S$277m and pre-tax profit rose 11% YoY to S$31.6m.

Enlarged order book to support 2H12
STE's order book grew from S$12.2b to S$12.7b between end Mar and end Jun 2012. The size of the 2Q12 order book compares even more favourably to 2Q11's order book of S$10.8b. To recap, in 2Q12, Aerospace secured S$370m of new contracts and its first VIP Boeing Business Jet maintenance check contract. Marine won a S$880m contract to design and build four patrol vessels for the Royal Navy of Oman. Management expects S$2.5b of STE's order book will be delivered in 2H12.

Maintain BUY
Management is cautiously optimistic and continues to guide higher revenue and pre-tax profit for FY12 versus FY11. We maintain our fair value estimate of S$3.50/share and BUY rating on STE.