ST Engineering (STE) reported its 3Q14 results, with revenue coming in at S$1552.9m, +0.2% YoY, as higher revenue from Marine was offset by lower revenue from Aerospace, while Electronics and Land Systems were comparable. But earnings fell 7.7% to S$121.3m, mainly due to reduced profitability at Aerospace (PBT down 19% YoY). As a result, 9M14 net profit slipped 5.2% to S$391.7m, meeting just 67% of our full-year forecast; 9M14 revenue was flat at S$4691.1m, or about 69% of our FY14 estimate. While STE has kept its comparable guidance for FY14 revenue, it lowered its PBT guidance for FY14 from comparable to lower than last year (we understand this to be >5% below); this as it now expects lower PBT from Aerospace, Land Systems and Marine sectors, and only Electronics is likely to be higher. Nevertheless, STE highlights that it still has an order book of S$13.2b, of which it will deliver about S$1.6b in 4Q14. We maintain our HOLD rating but with a lower S$3.47 fair value (versus S$3.68 previously).
Disappointing 3Q14 results
ST Engineering (STE) reported its 3Q14 results, with revenue coming in at S$1552.9m, +0.2% YoY, as higher revenue from Marine was offset by lower revenue from Aerospace, while Electronics and Land Systems were comparable. But earnings fell 7.7% to S$121.3m, mainly due to reduced profitability at Aerospace (PBT down 19% YoY). As a result, 9M14 net profit slipped 5.2% to S$391.7m, meeting just 67% of our full-year forecast; 9M14 revenue was flat at S$4691.1m, or about 69% of our FY14 estimate.
Main variance for the underperformance
This quarter, the main variance for the underperformance came from the Aerospace segment (Marine sector was underperformer in 2Q14), which posted lower PBT due to weaker performance from the European operations, restructuring costs, and impairment for an associate. STE also saw higher PBT losses under its Others segment, mainly due to lower PBT from Miltope and unfavourable forex impact.
Lowers FY14 PBT guidance
While STE has kept its comparable guidance for FY14 revenue, it lowered its PBT guidance for FY14 from comparable to lower than last year (we understand this to be >5% below); this as it now expects lower PBT from Aerospace, Land Systems and Marine sectors, and only Electronics is likely to be higher. Specifically, management notes that the outlook for Europe remains bleak, which will affect the various segments of its business; the US is improving but may not be enough to lift overall group; adds that China is not rosy. Nevertheless, STE highlights that it still has an order book of S$13.2b, of which it will deliver about S$1.6b in 4Q14.
Paring FV to S$3.47
In line with its latest PBT guidance and outlook, we are shaving our earnings estimates for FY14 by7% and FY15 by 4%; this in turn reduces our fair value from S$3.68 to S$3.47 (still based on 19x blended FY14/FY15F EPS). We maintain our HOLD rating.
ST Engineering (STE) reported its 3Q14 results, with revenue coming in at S$1552.9m, +0.2% YoY, as higher revenue from Marine was offset by lower revenue from Aerospace, while Electronics and Land Systems were comparable. But earnings fell 7.7% to S$121.3m, mainly due to reduced profitability at Aerospace (PBT down 19% YoY). As a result, 9M14 net profit slipped 5.2% to S$391.7m, meeting just 67% of our full-year forecast; 9M14 revenue was flat at S$4691.1m, or about 69% of our FY14 estimate.
Main variance for the underperformance
This quarter, the main variance for the underperformance came from the Aerospace segment (Marine sector was underperformer in 2Q14), which posted lower PBT due to weaker performance from the European operations, restructuring costs, and impairment for an associate. STE also saw higher PBT losses under its Others segment, mainly due to lower PBT from Miltope and unfavourable forex impact.
Lowers FY14 PBT guidance
While STE has kept its comparable guidance for FY14 revenue, it lowered its PBT guidance for FY14 from comparable to lower than last year (we understand this to be >5% below); this as it now expects lower PBT from Aerospace, Land Systems and Marine sectors, and only Electronics is likely to be higher. Specifically, management notes that the outlook for Europe remains bleak, which will affect the various segments of its business; the US is improving but may not be enough to lift overall group; adds that China is not rosy. Nevertheless, STE highlights that it still has an order book of S$13.2b, of which it will deliver about S$1.6b in 4Q14.
Paring FV to S$3.47
In line with its latest PBT guidance and outlook, we are shaving our earnings estimates for FY14 by7% and FY15 by 4%; this in turn reduces our fair value from S$3.68 to S$3.47 (still based on 19x blended FY14/FY15F EPS). We maintain our HOLD rating.
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