Company Name: SINGAPORE TECH ENGINEERING LTD
| Research House: DBS Vickers | Price Call: BUY | Target Price: 4.80 |
ST Engineering reported flat revenues and net profit of $1.5 billion and $134 million respectively in 1Q13. Excluding the $9 million income from the Singapore Airshow in 1Q12, Profit before tax would have been up 5%, in line with estimates. Earnings were also impacted to an extent by provisions for bad debts and stock obsolescence and higher R&D expenses totalling about $13 million. Group profit before tax margin was stable at 10.5%. Most encouraging in this set of results was the improving trend in Aerospace profit before tax margins to 15.8%.
As expected, ST Engineering announced a record orderbook of $13 billion as of end-1Q13, up from $12.1 billion at end-FY12, as they took in big orders in 1Q13. This includes the contract to build eight naval vessels for the Singapore Navy, which we estimate to be worth over $1 billion. “We assume YTD order wins to be $2 billion in FY13, about half the figure recorded in FY12. This underpins steady 6% growth in earnings over FY13/14. With strong operating cash flows, gross cash level exceeded $2 billion, and future dividends appear secure,” says DBS Vickers.
“In terms of yield spreads, we reckon ST Engineering valuations are still not quite close to the previous peaks, and there is room for further upside. Thus, we maintain our BUY call on ST Engineering with a revised target price of $4.80, with higher valuation pegs premised on lower prevailing risk free rate and market return expectations. With healthy earnings growth projected to be 6% and yield of about 4%, we believe the stock still presents one of the more compelling investment cases compared to the other defensive, dividend yield names listed on the SGX, where growth may not be as steady or as visible,” adds DBS Vickers.
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