Monday, January 13, 2014

ST Engineering: Reducing peg to 19x FY14F EPS (OCBC)

ST Engineering:
Fair value S$3.91
add: 12m dividend forecast S$0.17
versus: Current price S$3.88
Reducing peg to 19x FY14F EPS

Singapore Technologies Engineering (STE) had a good run from 31 Dec 2012 to 7 Nov 2013. Its share price rose 9.9%, outstripping the STI’s 1.1% increase over the same period. However, STE’s 3Q13 results, announced on 7 Nov, missed ours and the street's expectations and since then, STE’s share price has fallen 7.6% from S$4.20 to S$3.88 (versus a 2.4% decline for the STI). While the miss was in large part due to one-off items, we believe that investors have begun to apply lower valuations to STE to bring its multiples closer in line with its peers after the outperformance and with gradually less interest in yield plays such as STE due to the progressive tapering by the US Fed. Having re-examined STE’s peer group’s multiples, we lower our peg from 21x to 19x (applied to FY14F EPS of 20.6 S cents). We thus reduce our FV on STE from S$4.32 to S$3.91, and maintain a HOLD rating on STE on valuation grounds.


3Q13 lead to market’s re-examination
Singapore Technologies Engineering (STE) had a good run from 31 Dec 2012 to 7 Nov 2013. Its share price rose 9.9%, outstripping the STI’s 1.1% increase over the same period. However, STE’s 3Q13 results announced on 7 Nov 2013 missed ours and the street's expectations. 9M13 EPS of 13.34 S cents formed only 66% and 68% of the street's and our prior FY13 forecast. While 3Q13 revenue grew 0.5% YoY to S$1.55b, PATMI fell 9.9% to S$131.4m. Since then, STE’s share price has fallen 7.6% from S$4.20 to S$3.88 (versus a 2.4% decline for the STI). While the miss was in large part due to one-off items, we believe that investors have begun to apply lower valuations to STE to bring its multiples closer in line with its peers after the outperformance and with gradually less interest in yield plays such as STE due to the progressive tapering by the US Fed.

Still hauling in the contracts
STE reported yesterday that ST Marine has secured new orders worth about S$446m in 4Q13. These orders are in addition to the recent contract worth about US$350m won by its US shipyard, VT Halter Marine, Inc for the design and construction of two units of Container Roll-on/Roll-off vessels and the bareboat charter contract for a Roll-on/Roll-off Passenger vessel.

Lower FY14F P/E peg
Based on our estimates, FY14 could show a 14% YoY increase in EPS to 20.6 S cents. Re-examining STE’s peer group’s multiples, we note that its regional peers are trading at a Bloomberg blended forward P/E of 17.2x. STE is a well-run, diversified conglomerate with defensive characteristics due to its fairly stable government-related work (e.g. 37% of 3Q13 revenue) and it deserves to trade at least on par with, if not at a premium to, its peer group. We lower our peg from 21x to 19x (applied to FY14F EPS of 20.6 S cents), which reduces our FV on STE from S$4.32 to S$3.91, and maintain a HOLD rating on STE on valuation grounds. FY14F dividend yield is 4.8%.


Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date:07/01/14

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