<Results First Take!> ST Engineering (STE SP) –1QFY22 results broadly in line with expectations

  • Group revenue grew by 13% y-o-y to S$2.03bn, driven by broad-based growth across all three segments.
  • S$2.4bn worth of new contracts secured in 1QFY22, led by the commercial aerospace and defence & public security segments.
  • With the acquisition of TransCore in 1QFY22, STE’s orderbook is currently at S$21.3bn. Organic orderbook (excluding TransCore) hit yet another record high of S$19.7bn in 1QFY22, up from S$19.3bn in 4QFY21.
  • STE believes the impact from current supply chain disruptions, rising inflation and Ukraine-Russia conflict is immaterial.
  • With around US$91.4m of T-lock gains secured thus far, STE’s weighted average cost of financing for TransCore acquisition is estimated to be 1.8% for the 1st year.
  • Dividend per share of 4.0Scts per share was declared.

Key points:

  • 1QFY22 revenue of S$2.03bn is largely in-line with our full-year estimate of S$9.3bn, given S$580-600m revenue contribution by TransCore over the next few quarters.
  • Commercial aerospace segment saw significant top line growth to S$674m (+22% y-o-y) in 1QFY22, representing 86.2% of pre-pandemic levels. Momentum in the division continues to be strong, given robust demand in STE’s OEM operations (nacelles and P2F) and continued recovery in MRO activities with global reopening of borders. Ukraine and Russia conflict’s impact on STE’s commercial aerospace operations has been limited thus far, especially with intra-region flight activity hitting 80-85% of pre-pandemic levels in early May-22, up from 75% when the conflict broke out.   
  • Urban Solutions & Satcoms division revenue grew by 12% y-o-y to S$297m, representing 126% of pre-COVID19 levels, primarily driven by higher smart city revenues with the easing of health protocols across many countries.
  • Defence & Public Security (DPS) segment revenue climbed 9% y-o-y to S$1,062m, slightly surpassing pre-crisis levels of S$1,026m.
  • STE clinched S$0.9bn of new orders in the commercial aerospace segment, including new P2F orders by DHL and an aircraft lessor, and a new MRO contract with Vietjet. Meanwhile, the group won S$1.3bn of new orders in the DPS division, driven by strong demand for its digital business (cloud, AI and cybersecurity) and defence equipment.
  • Recent assessment done by STE indicates that the group can overcome inflationary pressures and supply chain bottlenecks through a series of measures like supply chain diversification, price adjustments due to escalation clauses in their contracts and continued focus to drive productivity and operating efficiencies to manage costs.  
  • Quarterly dividend of 4.0Scts per share was announced, as per changes to their dividend policy to quarterly distributions from semi-annual distributions. Full-year dividend per share of 16.0Scts in FY22 represents a dividend yield of around 4% based on current share price levels.