• 4Q impacted by one-off charges
• FY18 core net profit up 9%
• Order book of S$13.2b

FY18 Core Net Profit Up 9% at S$527m

Singapore Technologies Engineering (STE) delivered a 2.7% YoY rise in revenue to S$6.7b and a 1.7% fall in net profit to S$494m in FY18, compared to ours (S$532m) and the street’s (S$539m) expectations. Excluding one-off charges of S$32.6m, net profit would have been 9% up at S$527m, which would have been in line with our expectations. The decrease in net profit mainly arose from the Land Systems division (-34.5% to S$52.9m), partially offset by higher contribution from Electronics (+17.7% to S$186.5m) and Marine (+18.2% to S$45.2m).

Impacted by One-off Charges

Within the one-off charges, there was a S$24.7m charge relating to portfolio rationalisation and others such as divestment losses of the group’s pilot training school in the US and road construction business in India, impairment charges for the road construction business and automotive MRO business in Brazil, as well as transaction costs of the proposed MRA Systems acquisition. There was also a S$7.9m charge relating to redemption of the group’s mediumterm note.

65% of FY19 Revenue Forecast Is Visible

New contracts announced amount to about S$5.24b in FY18, comprising S$2.06b from Aerospace, S$2.19b from Electronics and S$991m from Marine (this includes options for five newbuilds). Land Systems also secured new contracts for weapons and munitions, as well as the supply of 20 electric buses and 111 two-door double-deck Euro 6 diesel buses to Singapore’s LTA. All these brought the group’s order book to S$13.2b as at end FY18, of which S$4.9b is expected to be delivered in FY19.

Integration of MRAS This Year

Looking ahead, the Aerospace segment is likely to be occupied with the integration of MRAS this year upon completion of transaction. A final dividend of 10 cents has been declared, bringing the full year dividend to 15 cents, which is the same as a year ago. This translates to a dividend yield of 4.0%, based on 21 Feb’s closing price. We fine tune our estimates and our FCFF-based FV rises slightly from S$3.95 to S$4.01.

Source: OCBC Research - 22 Feb 2019