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A Bright Future for Singapore Technologies Engineering With Higher Order Book

The aptly-named Singapore-based engineering firm Singapore Technologies Engineering  (SGX: S63) announced its first quarter earnings last Friday and saw both its top- and bottom-line inch marginally upwards.

The company has four main business sectors: Aerospace; Electronics; Land Systems; and Marine.

The first sector provides a spectrum of maintenance and engineering services that include airframe, engine and component maintenance, repair and overhaul among others. Under its Electronics arm, ST Engineering specialises in the design, development and integration of advanced electronics and communications, such as broadband radio frequency and satellite communication, real-time command and control, modelling and simulation, rail and traffic management etc.

With Land Systems, the company delivers products such as integrated land systems and specialty vehicles for defence, homeland security and commercial applications. Finally, the Marine sector provides turnkey building, repair and conversion services for a wide spectrum of naval and commercial vessels.

Some basic numbers

For the three months ended 31 March 2014, the company’s total revenue came in at S$1.552 billion as compared to S$1.545 billion a year ago. Meanwhile, profits were 2% higher at S$137 million.

There was a mix in terms of the level of performance for ST Engineering’s four sectors.

Revenue for the marine sector had spiked by 27% year-on-year to S$369 million while the Aerospace sector notched up a 5% gain in revenue to S$501 million. On the other hand, the Electronics and Land Systems sector had dragged down the company’s figures; the Electronics sector saw sales decline 13% to S$369 million while revenue from Land Systems had slipped by 6% to S$325 million.

What’s next

There has recently been a host of contract wins for the company in its Aerospace and Electronics sectors; the former has won S$460 million worth of contracts while the latter has snagged S$581 million in deals. As of the end of March, the company has a record-high order book of close to S$13.4 billion and commented that “it expects to recognize about S$3.3b out of the [order book] in the remaining months of 2014.”

Tan Pheng Hock, president and CEO of ST Engineering, also added:

“The Group’s cash and cash equivalents including funds under management remained high at $2b after paying off $312m of bank loans. Barring unforeseen circumstances, the Group expects to achieve higher Revenue and PBT for FY2014 over FY2013.”

During the quarter, commercial sales had accounted for S$965 million or 62% of ST Engineering’s revenue. It seems that the company has set its sights on securing bigger and better contracts from commercial clients (as opposed to defence clients) judging from the recently announced contract wins.

Valuation

ST Engineering’s shares are currently worth S$3.82 each. At that price, the company is valued at 20.5 times trailing earnings and carries a dividend yield of 1.8% based on its annual pay-out for its last completed financial year.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.