Singapore Technologies Engineering Ltd’s Latest Earnings: Don’t Party Over A 25% Increase In Dividend Just Yet

Singapore Technologies Engineering Ltd (SGX: S63) released its fiscal second-quarter earnings report this morning. The reporting period was for 1 April 2015 to 30 June 2015.

The engineering firm, known as ST Engineering for short, has its fingers in many pies, thus making it a conglomerate. Its major business segments include Aerospace, Electronics, Land Systems, and Marine. This puts the conglomerate into a variety of sectors including defense, information communication technologies (ICT), and global maintenance, repair and operation (MRO).

You can read more about ST Engineering in here and its subsidiaries in here and here. Or, you can catch up with its previous quarter’s earnings here.

Financial highlights

The following’s a quick rundown on ST Engineering’s latest financial figures:

  1. Overall revenue for the second-quarter was $1.55 billion, a 3% drop compared to the same quarter last year.
  2. Quarterly profit attributable to shareholders came in at $125 million, down 6% year-on-year.
  3. Consequently, earnings per share (EPS) for the second-quarter also fell 6% from 4.28 cents in the second-quarter of 2014 to 4.01 cents in the reporting quarter.
  4. Cash flow from operations was on the negative side, coming in at $70.9 million. With capital expenditures clocking in at $32.8 million, this gave the conglomerate a negative free cash flow of $103.7 million.  This is a significant decline from a year ago when ST Engineering had $301 million in positive cash flow from operations, $51.8 million in capital expenditures, and thus $249.2 million in free cash flow.
  5. As of 30 June 2015, ST Engineering had $1.1 billion in cash and equivalents and borrowings of nearly the same amount at $1.1 billion as well. This is step back from the $1.6 billion in cash and equivalents and borrowings of $982 million that were recorded in the same quarter last year.

Overall, ST Engineering had experienced another sluggish quarter with a decline in revenue and profit that is similar to what it experienced in the first-quarter of 2015. Unfortunately, the conglomerate’s free cash flow for the reporting quarter had turned negative while its balance sheet weakened. ST Engineering’s balance sheet is still relatively steady, but investors should continue to keep an eye on the free cash flow figure.

ST Engineering’s board of directors had approved a $0.05 per share interim dividend which is up by 25% from the $0.04 per share paid out last year.

An increase in dividends is a nice thing to have as an investor, but attention should still be focused on the progress that the company’s making in its business. Ultimately, it’s a growing business that provides sustainable fuel for rising dividends; on this matter, ST Engineering has some work cut out for it judging by its aforementioned sluggish business performance.

Operational highlights

For the second-quarter of 2015, ST Engineering’s Aerospace business segment recorded a 4% decline in revenue to end the quarter with $515 million. The segment’s results are roughly in line with rival SIA Engineering Company Limited’s  (SGX: S59) 5.7% decline in revenue over the same timeframe.

Elsewhere, ST Engineering’s Electronics and Land Systems business segments both clocked an 8% increase in revenue year-on-year. The former ended the quarter with $413 million in revenue while the latter brought in sales of $317 million.

The majority of ST Engineering’s pain came from the Marine business segment which saw its revenue get sliced by more than a quarter to $254 million on a year-on-year comparison.

The conglomerate ended the second-quarter with an orderbook of $12.4 billion of which $2.3 billion is expected to be delivered in the remainder of 2015. A total of $1.34 billion in new contracts were also announced during the reporting quarter. For some perspective, ST Engineering’s orderbook was at $13.4 billion at end-June 2014. While the decline in orders is not a big issue for the time being, it’s something worth keeping an eye on.

Lee Fook Sun, ST Engineering’s Deputy Chief Executive Officer, shared the following comments on the company’s performance and future outlook in the earnings release:

“In 2Q2015, the Group reported comparable year-on-year Revenue and PBT [profit before taxes]. 1H2015 Revenue was comparable while PBT was lower compared with 1H2014. The Group secured more new orders to end the quarter with a healthy order book of $12.4b. Cash and cash equivalents including funds under management remained high at $1.5b after payment of the final FY2014 dividend of $342m.

The Board of Directors has approved the payment of an interim ordinary dividend of 5.0 cents per share, payable on 3 September 2015. Barring unforeseen circumstances, the Group expects FY2015 Revenue and PBT to be comparable to that of FY2014.”

Foolish take away

At its opening price today of $3.23, ST Engineering traded at around 19.5 its times trailing earnings and has a trailing dividend yield of around 5%.

If you'd like to receive investing insights and be updated on the latest company and stock market news, sign up for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore

Also, 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 Chin Hui Leong doesn’t own shares in any companies mentioned.