The Motley Fool

Singapore Technologies Engineering Ltd Reported Lower Profits for the Latest Financial Year

Singapore Technologies Engineering Ltd (SGX: S63) reported its financial results for the full year ended 31 December 2014 (FY2014). The firm, which employs 23,000 people all over the world, has businesses in the aerospace, electronics, land systems and marine sectors.

For the latest year, top line was at S$6.5 billion, which dropped 1.4% year-on-year as compared to last year’s S$6.6 billion. The slight dip was due to marginal declines in revenues of all the sectors except for the Marine sector. Revenue at the Marine sector surprisingly went up despite the plunge in oil prices.

The largest contributor to the revenue, which contributed S$2.1 billion to the top line, or 32%, was the Aerospace sector. Revenue for the sector came down S$18 million, or 1%, due to “lower revenue from both Aircraft Maintenance & Modification and Component/Engine Repair & Overhaul business groups, were partially offset by more Maintenance-by-the-Hour programme in the Engineering & Materials Services business group”.

Profit before tax (PBT) declined 11% year-on-year to S$650.7 million due to lower PBT at all sectors except Electronics and “Others”. The Aerospace sector saw an 11% decrease in PBT to S$283 million on the back of poorer performance from the European offices, restructuring costs and higher allowance for inventory obsolescence.

Investors may want to keep an eye on the Aerospace business closely as it contributes to the bulk of revenue and profits. Its major rival, SIA Engineering Company Limited (SGX: S59), recently posted a fiscal third quarter net profit drop of 23.5% year-on-year on the back of a 6.5% drop in revenue. The full year results of SIA Engineering (when it’s released) and ST Engineering’s will be an interesting comparison, even though the reporting periods are different.

Due to the decline in PBT and consequently, net profits, which came down 8.4% to S$532 million, earnings per share went south by 9% to 17.06 Singapore cents.

As of 31 December 2014, ST Engineering had a total debt of S$1.02 billion against a cash backdrop of S$1.5 billion. Exactly a year back, the figures were at S$1.4 billion and S$1.9 billion respectively. It can be seen that the balance sheet slightly weakened in the latest period.

Even though the net profit “only” declined 8.4% (as seen above), cash flow from operations plunged 32.9% year-on-year to S$624.3 million. This was due to “lower profits, higher income tax paid as well as unfavourable working capital movements”. Declines in cash flow from operations every year may lead a company to take on more debt to continue its business and may cause problems when banks tighten during an economic crisis.

Shareholders of the engineering group will get a final dividend of 11 Singapore cents per share (comprising of ordinary dividend of 4 cents and a special dividend of 7 cents). Together with the interim dividend of 4 cents already given to shareholders, the total dividend for the full year will be 15 cents per share, unchanged from last year.

Going forward, ST Engineering is expected to deliver S$3.8 billion worth of projects this year from its order book of S$12.5 billion. It said that barring unforeseen circumstances, it expects the revenue for FY2015 and PBT to be comparable to FY2014.

The firm is now yielding 4.3% and is going at 21 times its latest earnings.

For more (free!) stock analyses and investing tips, sign up here for your FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.

Like us on Facebook to follow our latest hot articles.

The Motley Fool's purpose is to help the world invest, better.

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