2H21 Results slightly above expectations
<Results First Take> ST Engineering (STE SP): 2H21 Results slightly above expectations
- 2H21 net profit came in at S$274.4m, up 3.8% y-o-y but down 7.3% h-o-h, bringing full-year net profit to S$570.5m, which is slightly above our FY21F net profit estimate of S$553.0m.
- Group revenue in 2H21 was up by 12.7% y-o-y driven by a broad-based recovery across all segments, with commercial aerospace revenue growing by 25% y-o-y, reaching 93% of pre-crisis levels in 4Q21.
- Orderbook climbed to S$19.3bn in Dec-21, up from S$18.2bn last quarter, setting yet another new record for the Group.
- Final dividend of 10Scts per share declared, on-par with last year and in line with our expectations; changes to dividend policy for FY22 are a positive surprise
- We currently have a BUY call with a TP of S$4.60, and will revise our earnings projections and TP following the analyst briefing later in the morning.
Highlights
- Cost savings and continued business recovery more than offset reduction in government support of S$149m.
- Excluding government support, core EBIT would have amounted to S$469m for FY21, up significantly from S$243m in FY20, but 33.6% below the EBIT achieved in FY19.
- Commercial aerospace division EBIT recovered significantly to S$79.3m (+73.1% y-o-y) in 2H2021, helping to mitigate drag at the Urban Solutions & Satcom division, which saw a 37.5% decline in EBIT due to lower government support, transaction fees booked for the acquisition of TransCore and delays from the global semiconductor chip shortage.
- Group EBIT margin expanded to 8.8% in FY21, up from 8.3% in FY20, and nearly on-par with pre-crisis levels. However, STE’s EBIT margin would have been 6.1% in FY21 without government support.
- The Group announced S$3.2bn of contract wins in 4Q21, representing a new high for the Group.
- STE’s board has approved a change to its dividend policy – the Group will now be paying quarterly dividends of 4.0Scts each time in FY22, bringing total dividends payable for FY22 to 16.0Scts, up from 15.0Scts, a level which the Group has maintained for the past few years.
Our thoughts
- 2H2021 results was a slight beat due to stronger-than-expected business recovery in its commercial aerospace segment.
- It will be challenging for STE to achieve meaningful bottom-line growth in FY22 because of the absence of around S$205m of government grants, however we believe sustained business recovery and greater cost efficiencies will help fill the void.
- Amendment to dividend policy is a pleasant surprise – investors will now receive more frequent income streams, and also a higher absolute amount of dividends going forward.
- Orderbook of S$19.3bn will underpin stronger earnings momentum over the next few years, especially after TransCore is successfully integrated into the Group.
- More updates to come after the analyst briefing.