Following its 1H20 results posted on August 14, analysts are mixed on the prospects of Singapore Technologies Engineering (ST Engineering) mainly due to the hit the group took in its aerospace segment.
CGS-CIMB Research analyst Lim Siew Khee said ST Engineering’s 1H20 net profit of $257 million was in line with estimates, at 51% of her FY20 forecast. The group also maintained its interim distribution per share (DPS) of 5 cents, which is a “good sign” as Singapore corporates have cut their dividends for the period.
See: ST Engineering earnings dip 4% in 1H20 to $257.4 mil
Heading into 2H20, Lim has raised her DPS forecast for FY20e from 13 to 15 cents, as ST Engineering expects $300 million of government grants in FY20F. The group has since received about 50% of the 10-month Job Support Scheme grant for the 1H20, with 40% for aerospace.
On the back of the lowered value of new contracts from the Aerospace segment, as well as its operating at two-thirds capacity in 1H20, Lim has also given the group’s aerospace sector three to four years before returning to pre-Covid-levels.
Moving beyond FY20, Lim does not rule out more targeted government help for weaker sectors such as marine and aerospace.
However, strong demand for cargo aircraft and its passenger-to-freighter programme could buffer the lower figures, says Lim. She believes the programme could be prominent in FY21F as aircraft feedstock and supply chain problems are gradually resolved.
Lastly, Lim expects stronger 2H20F earnings from the Land System division as the SAF’s Hunter Armoured Fighting Vehicle has reached optimal production capacity by June with more deliveries expected.
On that, Lim has maintained her “add” recommendation on the group with an increased target price of $3.76 from $3.46 previously.
The team at OCBC Investment Research has also maintained its “buy” call with a maintained fair value estimate of $3.90 on the counter.
However, it is less buoyant than CGS-CIMB’s Lim at the prospect that support is not expected beyond this year. As such, it is estimating ST Engineering’s revenue to come in at 5-15% lower than that posted in FY19.
The team remains upbeat at the group’s prospects on its passenger-to-freighter programme and smart city solutions, including safe access control management.
On the other hand, DBS Group Research analysts Survo Sakar and Jason Sum have given a “hold” call with an unchanged target price of $3.40.
They said as government grants are not expected to continue beyond this year, FY21 earnings remain uncertain.
They also continue to expect a drag from Aerospace and Electronics segments with the fallout from Covid-19. They said “earnings and orderbook recovery story is missing and upside looks limited at current levels.”
However, the DBS analysts note that dividend yield of around 4.4% at current price provides support to ST Engineering’s share price.
“ST Engineering is still one of the more resilient industrial sector stocks given its diversification, compared to peers in the industrial space and aviation services space, and hence can maintain dividends. “We will turn buyers of the stock only if the share price retreats below $3.10.” they said.
Despite the expected earnings decline for ST Engineering in 2020, RHB analyst Shekar Jasiwal said the company is likely to sustain an unchanged distribution per share (DPS) of 15 cents from 2019 for 2020.
He noted the company mentioned that it has adequate funds from past years’ retained earnings to support 2020 dividend payment.
As at 2pm, shares in ST Engineering were trading 4 cents higher, or 1.2% up at $3.43, with a FY20 price-to-book ratio of 4.6 and dividend yield of 4.4%.
