9 Quick Things Investors Should Learn About Singapore Technologies Engineering Ltd

Singapore Technologies Engineering Ltd (SGX:S63) is one of the cool companies which shares its quarterly earnings webcast (the link is here ).

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).

Engineering growth

Below are nine useful things I learnt after listening to the second quarter ’s earnings briefing:

  1. The tagline for ST Engineering’s previous quarter was candid – “Lower Profits”. This quarter, the tagline was “Higher PBT [profit before tax]”. For context, the management team was expecting lower PBT for the year. This quarter was better than expected.
  2. Profits were boosted from a divestment of Guiyang Jonyang Kinetics (under its ST Kinetics arm), a remeasurement gain from an acquisition made last year and additional government grants for some of its subsidiaries in Singapore and Xiamen, China. In all, PBT was up 7% year on year while net profit was up 2% year on year.
  3. ST Engineering also shared some financial highlights for the quarter. Firstly, commercial sales were at S$1.1 billion or 65% of total sales in the second quarter. Secondly, ST Engineering’s order book was S$11.6 billion. Next up, cash and cash equivalents (including funds under management) was S$1.3 billion. Finally, ST Engineering’s EBITDA (earnings before interest, taxes, depreciation and amortization) was flat compared to the year before.   
  4. ST Engineering also broke down revenue by the location of its customer. Asia comes out tops with S$930 million or 57% of ST Engineering’s second quarter revenue. Europe’s contribution which moved from S$71 million or 5% of the overall pie in the second quarter last year to 10% in the reporting quarter. This was due to the consolidation of the new Elbe Flugzeugwerke GmbH (EFW) subsidiary at its ST Aerospace division.
  5. Overall, ST Engineering’s PBT margin was unchanged. The most acute fall was at the Marine sector where PBT margins was 8%, down from 12% in the second quarter of last year. Land Systems saw its PBT margin increase from 5% in last year’s second quarter to 10% in the reporting quarter. However, most of it came from a divestment gain. Without the gain, PBT margin would be unchanged from a year ago.
  6. ST Engineering alos gave a brief summary of the divisional performance. The ST Aerospace division recorded higher revenue from contributions from its new subsidiaries. EBIT (earnings before interest and taxes) was up, albeit a slower pace due to higher inventory provision and higher depreciation and amortization. ST Aerospace also secured S$770 million in new contracts during the quarter.
  7. ST Electronics also recorded a healthy 8% growth in revenue year on year benefitting from higher revenue from the large scale systems group (LSG) and the communication and sensors system group (CSG). EBIT was up 6% year on year to around S$48 million. ST Electronics also secured S$650 million in new contracts during the quarter.  
  8. Land Systems had lower revenue due lower project deliveries. Sales were down 11% year on year. EBIT was also down, but at a slower pace of 2% year on year. Finally, the Marine division held steady with comparable revenue with the same quarter a year ago. EBIT was down 35%, though, due to unfavourable project mix and allowance of doubtful debts.
  9. 2016’s outlook remains unchanged. Overall, ST Engineering expects revenue to be higher but PBT to be lower compared to 2015. The management team expects the Aerospace and Electronics division to record higher revenue. Elsewhere, the group also expects comparable revenue at Land Systems and lower revenue for Marine.

Foolish takeaway

If we are looking to own a company for the long term, we have to keep up with developments in the company.

The access to management teams via webcast gives the Foolish investor a fair chance to judge for themselves on whether they would like to be invested alongside the management teams that they have chosen. It also helps us put together a more complete thesis around the company and keep up with developments in its industry.

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