• Strong order book of S$13.4b
• Diversified operations
• Div yield ~4.7%

Continues to Streamline Capabilities

Singapore Technologies Engineering (STE) recently announced the divestment of 25% equity interest in its indirect associate, Airbus Helicopters SE Asia Pte Ltd (AHSA) to its JV partner, Airbus Helicopters SAS. The consideration for this is EUR9.125m (~S$14m), which will be paid wholly in cash. AHSA was set up between STE and Airbus Helicopters in 1977 to provide helicopter sales, repair, overhaul, logistics and product support services, and the divestment is a result of STE’s ongoing business review to streamline capabilities and optimize resources within its aerospace sector.

In May, the group also announced that its electronics arm, ST Electronics, has streamlined its entities through a short-form amalgamation – STELCOMMS Pte Ltd with ST Electronics (InfoComm Systems) Pte Ltd.

Strong Order Book With Good Diversification

STE’s strong order book of S$13.4b as at end Mar provides stability and visibility. Out of this, S$3.2b is expected to be delivered in the remaining months of 2018 (Apr-Dec).

Looking ahead, the group aims to

1. grow its Smart City revenue of S$1b to more than double by 2022,
2. grow the core and other business segments with CAGR of 2-3x global GDP growth rate over the next five years, and
3. expects that two-thirds of its revenue growth will be from global markets by 2022.

In FY17, Aerospace contributed 51% of group pre-tax profit, followed by Electronics at 34%, Land Systems at 14%, and Marine & Others at 1%.

Consistency in Dividends; Yield About 4.7%

STE’s share price has corrected by about 12% from its peak of S$3.70 in mid Apr and is now trading at 17.5x forward P/E with a forecasted dividend yield of ~4.7%. With a change in analyst coverage, we tweak our estimates and our fair value estimate slips slightly from S$4.00 to S$3.90.

In at least the past five years, the group has been paying out full year dividends of S$0.15/share; from FY13-FY16 a portion of this was paid as a “special dividend”. From FY17, the group classified this as part of the “final dividend”, illustrating the group’s confidence in its cash flows and dividend sustainability.

Source: OCBC Research - 5 Jul 2018