Singapore Technologies Engineering (STE) reported a 3.3% YoY drop in revenue S$1.65b and a 10.0% increase in net profit to S$117.5m in 2Q18, such that 1H18 net profit accounted for about 44% of our full year estimates. Results were within expectations; as a reference, 1H17 net profit had accounted for 41% of FY17 net profit.

Bottom-line was driven by Aerospace, which saw a 26% YoY rise in net profit, while Electronics saw a 22% increase. Land Systems saw a 3% fall while other Marine generated net profit of S$9.2m instead of a net loss in 2Q17.

The “Others” segment incurred higher losses of S$25.4m with the one-time interest cost accrued for the early redemption of the group’s outstanding notes and lower contribution from Miltope.

An interim dividend of 5.0 S cents was declared, same as last year. Pending an analyst briefing, we maintain our BUY rating but put our fair value estimate of S$3.90 under review.

Source: OCBC Research - 8 Aug 2018