FY23 results slightly above expectations with TransCore turning earnings accretive ahead of guidance
- FY23 core net profit came in at S$610m, topping our estimate slightly by 2%; full-year revenue of S$10.1bn was also above our expectation by 2%.
- Core operating margin strengthened to 9.3% in FY23 from 7.5% in the previous year, surpassing pre-pandemic levels, with the group’s P2F operations and TransCore turning EBIT accretive.
- New contracts worth S$3.1bn were secured in 4QFY23, bringing contract wins to S$14.8bn for the year; total order backlog dipped marginally to S$27.4bn as of Dec-23.
- 4QFY23 dividend of 4.0 Scts per share was declared; full-year dividend per share of 16.0Scts unchanged from previous years
FY23 results slightly above expectations. FY23 core net profit surged by 24% y-o-y to S$610m, beating our expectation by 2%, while revenue of S$10.1bn (+12% y-o-y) was also ahead of expectations slightly by 2%. Overall business momentum continues to be robust – STE’s aerospace segment heads a particularly strong showing, registering top-line and EBIT growth of 31% and 47% respectively for the year, while revenue at its defence and public security segment was flat y-o-y, due to the divestment of its US marine business, EBIT surged by 40% y-o-y in FY23. Meanwhile, revenue for its urban solutions and satcom (USS) divisions grew by 10%, but the group saw EBIT decline by 66% due to a drag from its satcom business. Group core operating margin was impressive, climbing to 9.3% in FY23 from 7.5% in the previous year. While the satcom division saw slight margin compression to 0.5% in FY23, down from 1.6% in FY22, STE’s P2F business turned EBIT positive towards end-FY23 as per management guidance, and TransCore was EBIT-accretive for full-year FY23, which was a pleasant surprise. New contracts worth S$3.1bn were clinched in the final quarter of the year, bringing total order wins to S$14.8bn for the year, while the group’s order backlog was flat q-o-q at S$27.4bn. Final dividend of 4.0Scts per share was declared, bringing full-year dividend per share to 16.0Scts, on-par with previous years.
What we’re looking out for: More clarity on the group’s growth prospects and cost challenges over the next few years – aerospace division should continue to benefit from a sustained rebound in global travel activity and higher output rates in its OEM business as the group opens more P2F conversion lines and Airbus ramps up A320neo production. However, cost inflation is still a concern given lingering supply chain disruptions and a tight labour market. Satcom business has been a drag on the group since they were hit by the pandemic, more clarity is required on its turnaround timeline. Other parts of the group’s USS business seem to be performing well, with TransCore clinching an international contract to provide a smart parking solution for a mall in Dubai, but information on more potential international contracts for TransCore is needed. STE’s digital business saw a solid 20% y-o-y growth to S$463m in 2023, and is well on-track to exceed its earlier revenue target of S$500m by 2026, suggesting considerable room for upside. Meanwhile, the group’s defence business had international contract wins of S$950m which is commendable, but more colour on this segment would be great given heightened geopolitical tensions globally.