ST Engineering pops the champagne on strong numbers from all segments

But 2H will be even better.

According to CIMB, all of ST Engineering's segments registered earnings growth in 2Q13. 2H13 is expected to be even stronger backed by order book visibility. STE’s earnings growth is set to revert to the pre-global financial crisis levels of 10-12% p.a., justifying the premium valuation of over 20x P/E.

Here's more:

1H13 net profit was broadly in line at 45% of our and consensus FY13 forecasts. Management has guided for at least S$2.8bn revenue to be recognised in 2H13 from the order book, making up 60-70% of its total revenue.

We up our FY13-15 EPS by 1-2% on higher revenues. We keep our Outperform rating and target price, still based on blended valuations. Catalysts are stronger margins from aerospace and M&As.

Growth in all sectors
STE’s PBT rose 17% qoq and 1% yoy to S$189m. Excluding the one-off gains of S$12.8m (property sale in aerospace and land sys) in 2Q12 and S$4.4m (divestment of investments in electronics) in 2Q13, the yoy growth would have been higher at 5%.

Order book stands at S$12.7bn with S$2.8bn expected to be recognised in 2H13. Order book recognition usually account for 60-70% of its total revenue. Commercial segment remains the key contributor at 62% of the group’s revenue.

Higher margins for aero from better rates
Aerospace’s PBT was up 10% qoq and 1% yoy on higher PBT margins of 16.2%, taking the 1H13 PBT margins to 16% (FY12: 15%). This was mainly due to higher recoverable man-hour rates from its US Aircraft Maintenance & Modification (AMM) operations due to the shortage of airframe MRO facilities in the US.

We think the current margin profile is sustainable given its track record in the US (among top three in MRO companies).

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