• FY13 EPS flat YoY
• 80% dividend payout vs. 90%
• Maintain HOLD

Land Systems' gain on property disposal

STE reported a set of FY13 results that were generally in line with ours and the street's expectations. FY13 EPS of 18.73 S cents (flat versus FY12's 18.76 S cents) formed 99% and 104% of the street's and our forecasts. 4Q13 revenue grew 12% YoY and 25% QoQ to S$1.94b. Recall that 3Q13 was a disappointing quarter partially due to lower gross profit from Aerospace and Land Systems and an impairment of S$23.7m for ROPAX. On a QoQ basis, all four sectors registered higher revenue and PBT in 4Q13: Aerospace (+15%/+12%), Electronics (+49%/+9%), Land Systems (+12%/+126%) and Marine (+27%/39%).

Revenue growth was driven primarily by Electronics, which saw milestones completions of an air traffic control system, LTA's communications systems projects, higher sales of satellite communication products and electro-optics equipment. Land System's PBT jump to S$39.6m was chiefly due to gain on disposal of a property, higher revenue and lower operating expenses.

2013 round-up

FY13 revenue was S$6.63b, up 4%. PBT and net profit were S$730m (+2%) and S$581m (+1%). Commercial sales accounted for 62% of revenue. As of end-2013, order book was S$13.2b, up 9% YoY. Final ordinary and special dividends of 4.0 S cents and 8.0 S cents bring FY dividends to 15.0 S cents, versus 16.8 S cents for FY12. Payout ratio is 80%, versus ~90% for FY09-FY12.

Guidance for 2014

Management expects revenue and PBT in FY14 to be higher. For Aerospace, revenue is expected to be higher, but PBT is expected to be comparable. For Electronics and Marine, FY14 revenue and PBT are expected to be higher. For Land Systems, FY2014 revenue is expected to be comparable, whilst PBT is expected to be lower. But STE notes that dividend payout ratio may track lower to 75% over the next 3-5 years as its overseas operations grow further.

Maintain HOLD

We lower our FY14F EPS estimate slightly to 20.2 S cents from 20.6 S cents and trim our FV to S$3.84 (19x P/E peg) from S$3.91. Maintain HOLD.

Source: OCBC Research - 28 Feb 2014