Results in-line, stable performance. STE reported a decent set of results with net income of SGD147.9m (+10.3% QoQ, +3.3% YoY). Revenue growth was led by the Aerospace and Marine divisions with stable contributions from Electronics and Land Systems. EBITDA improved by 4% YoY to SGD210m largely due to higher margins at the Land Systems segment. At the end of the quarter, STE’s order book remains strong at SGD12.7b with SGD2.8b to be delivered in 2H13. Management maintained their positive guidance for stronger revenue and PBT across all divisions in 2H13 as compared to 1H13.

Bumper recognition at Singapore shipbuilding. The Marine division reported strong shipbuilding revenue at its Singapore operations. However, this was offset by weaker performance from VTHM, which management attributed to timing issues in revenue recognition.

Strong AMM offset lower CERO. Due to the ongoing restructuring of its European business, the CERO division experienced lower sales for the second consecutive quarter. On a positive note, the AMM division experienced one of the strongest quarterly sales in recent history. Despite the lack of property disposal gain of SGD7m in the comparable quarter, PBT remained stable.

Electronics boosted by one-off investment gain. Performance at the Electronics division was boosted by a gain on disposal of its investment in a HK listed company of SGD4.4m. Excluding the one-off gain, PBT for the division was little changed.

Better margins at Land Systems. Driven by a 2% improvement in EBITDA margins, the Land Systems segment reported significantly higher contributions to the group. This helped to offset the lack of property disposal gains in 2QFY12 of SGD5.7m.

Maintain BUY, TP: SGD4.80. We maintain our positive view on the stock with an unchanged target price of SGD4.80, based on 23x FY13/14 PER. As a heuristic gauge of the stock’s valuation, STE trades at a market capitalization-to-order ratio of 1.0x, which is below its market cycle average of 1.2x.

Source: Maybank Kim Eng Research - 14 Aug 2013