ST Engineering (STE) reported its 3Q14 results this morning, with revenue coming in at S$1552.9m, +0.2% YoY, as higher revenue from Marine was offset by lower revenue from Aerospace, while Electronics and Land Systems were comparable. But earnings fell 7.7% to S$121.3m, mainly due to reduced profitability at Aerospace (PBT down 19% YoY). As a result, 9M14 net profit slipped 5.2% to S$391.7m, meeting just 67% of our full-year forecast; 9M14 revenue was flat at S$4691.1m, or about 69% of our FY14 estimate.

More tellingly, STE has lowered its PBT guidance for FY14 from comparable to lower than last year (we understand this to be >5% below), despite keeping comparable revenue guidance; this as it now expects lower PBT from Aerospace, Land Systems and Marine sectors, and only Electronics is likely to be higher.

We will have more after the analyst briefing later. For now, we maintain our HOLD rating but place our S$3.68 fair value (based on 19x blended FY14/FY15F EPS) under review.

Source: OCBC Research - 7 Nov 2014