ST Engineering

ST Engineering: Flat FY13 results were in line with estimates with net profit of $580.8m (+0.8%) trailing revenue of $6.63b (+4%), which was mainly buoyed by the marine sector. But lower dividends will likely disappoint investors. For 4Q13, the group delivered decent growth, with net profit of $167.5m (+10% y/y, +27% q/q) on higher revenue of $1.94b (+12% y/y, +25% q/q), driven by improvement across all key divisions. At end Dec ’13, STE’s order book swelled to $13.2b (+6% q/q), of which $4.3b is expected to be delivered in FY14. Management expects STE to achieve higher revenue and pretax profit in FY14, likely driven by the Electronics and Marine segments. Aerospace is expected to achieve higher revenue but comparable pretax profit. Land systems may register lower pretax profit due to changes in product mix and the absence of disposal gains in FY13. However, investors may be disappointed by the lower dividend this year. STE declared a final plus special DPS of $0.12, bringing full year dividends to $0.15 (FY12: $0.168). Market watchers expect the step down in payout ratio to 80% (from 90% previously) to continue as STE’s operations in the US expand, in order to reduce the impact from withholding taxes. With a less attractive dividend angle to STE (estimated ~4%), and limited meaningful earnings rerating, the stock is a Hold for now. Latest broker ratings: Maybank-KE maintains Hold with TP $4.00 Credit Suisse maintains Underperform with TP $3.40 Deutsche maintains Buy, but cuts TP to $4.30 (from $4.45)