Thursday, May 12, 2011

ST Engineering

ST Engineering: Reported a firm 1Q11 results which were in-line, with rev +15% YoY to $1,567m, while net income rose 20% YoY to $111m, however on a sequential basis, earnings actually declined by 23%, with 1Q traditionally being a slow qtr for grp. Grp reported pre-tax growth in all 4 divisions except for the Marine sector which was flat YoY (Aerospace +33%, Electronics +15%, Land Systems +12% YoY)…..

Gross margins however dipped slightly to 18.8% vs 19.8% YoY. Net earnings for the qtr were assisted in part by change in depreciation policy which led to a 24% YoY decline in depreciation charge. As at end Mar, grp's order book stood at $11.3b, with $3b to be delivered in FY11, underpinning earnings visilibity till 2013, while balance sheet remains strong with a net cash of about $0.6b….

Overall, grp remains confident on prospects, esp. in the Aerospace division given continued airline capacity increases (high jet fuel prices, however, may be a risk). At current price, STE looks to be farily priced at 17x FY11E P/E vs historical average of 19x and a forward div yield of 5.4%. Deutsche maintains Buy with $3.95 TP, DBSV maintains Buy with $3.07 TP, Citi maintains Buy with $3.80 TP, while Kim Eng maintains Neutral with $3.15 TP.

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