ST Engineering - 3Q15 below expectations on Marine weakness; PBT guidance lowered


ST Engineering's 9M15 PATMI of S$388 mn was below expectations, achieving 73% of consensus' FY15 forecasts. 3Q15 EBIT decreased 16% YoY to S$121 mn, as a sharp profit decline in Marine more than offset improved performance in Land Systems.

Marine EBIT declined 63% YoY to S$11 mn in 3Q15 as a fall in oil and gas capex led to lower demand for its shipbuilding and repair businesses. Land Systems' EBIT increased to S$15 mn in 3Q15 from S$10 mn in 3Q14, due to lower allowance for inventory obsolescence for its commercial business in China.

Management reduced its guidance for FY15 PBT to be lower than FY14, compared to the earlier guidance for PBT to be comparable YoY. This was driven by a weak outlook for the MRO market, as well as a challenging environment for Marine.

We reduce our 2015-17E EPS by 8-9% due to lower estimates for Marine. While there are limited positive drivers in the near term, we expect support for STE's share price as its current P/B of 4.7x is close to its 08/09 low of 4.3x. Maintain NEUTRAL.

ST Engineering's 9M15 PATMI of S$388 mn was below expectations, achieving 73% of consensus' FY15 forecasts. 3Q15 EBIT decreased 16% YoY to S$121 mn, as improved performance in Land Systems was offset by a sharp profit decline in Marine. Marine's EBIT declined 63% YoY to S$11 mn in 3Q15 driven by weaker performance in both its shipbuilding and repair businesses. Land Systems' EBIT increased to S$15 mn in 3Q15 from S$10 mn in 3Q14, due to allowance for inventory obsolescence of S$2 mn in 3Q15 vs S$9 mn in 3Q14. Electronics' EBIT was steady YoY at S$47 mn in 3Q15, due to less favourable sales mix. Aerospace's EBIT declined to S$50 mn in 3Q15, driven by lesser airframe maintenance work as airlines exercised more cost discipline.

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Management reduced its guidance for FY15 PBT to be lower than FY14, compared to earlier guidance for PBT to be comparable YoY. This was driven by a weak outlook for the MRO market particularly in Europe, as well as a challenging environment for the shipbuilding and repair businesses. STE secured S$410 mn of Aerospace contracts and S$370 mn of Electronics contracts in 3Q15. Its order book decreased to S$12.2 bn as at September 2015 (vs S$12.4 bn in June 2015), of which about S$1.4 bn is expected to be delivered in the remainder of 2015 (versus S$1.6 bn in 3Q14). (Read Report)

Read Related Reports
1) ST Engineering - Stay invested for the long-haul by DBS Group Research, published on 9 November 2015

2) Idea Of The Day - ST Engineering by Lim & Tan Research, published on 9 November 2015

3) ST Engineering - Broad-based structural headwinds by CIMB Research, published on 6 November 2015

4) ST Engineering - More challenges but group remains firmly positioned; flat 9M15 by Deutsche Bank Markets Research, published on 6 November 2015

5) ST Engineering - Cyclical Upturn Still Within Sight by Maybank Kim Eng Research, published on 6 November 2015

Source : Credit Suisse Asia Pacific Equity Research

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