Singapore Technologies Engineering Ltd’s Latest Earnings: Profits Fall Sharply, But…

Singapore Technologies Engineering Ltd (SGX: S63) reported its 2016 third-quarter earnings this morning. The reporting period was for 1 July 2016 to 30 September 2016.

As a quick background, ST Engineering 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 overhaul (MRO).

You can read more about ST Engineering in here and its subsidiaries in here and here. You can also catch up with the results from its previous quarter here.

Financial highlights

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

  1. Overall revenue for the reporting quarter was $1.6 billion, an 8% increase compared to the same quarter last year.
  2. But quarterly profit attributable to shareholders came in at $76.7.3 million, down 42% year-on-year.
  3. Earnings per share (EPS) was also down 42% from 4.29 cents in the third-quarter of 2015 to 2.47 cents.
  4. Cash flow from operations came in at $169 million for the reporting quarter while capital expenditure came in at $48.8 million. This gave the conglomerate positive free cash flow of $120.6 million, a healthy improvement from the $57.9 million recorded a year ago.
  5. As of 30 September 2016, ST Engineering has $789 million in cash and equivalents and borrowings of about $1.05 billion. This is a decline from a year ago, when it had $920 million in cash and equivalents and borrowings of about $1.14 billion.

ST Engineering reported higher sales but lower profits. The profit decline is largely due to a one-off impairment charge of S$61.1 million on JHK’s assets; JHK is a road construction equipment business in China that ST Engineering owns.

The engineering conglomerate’s balance sheet also became slightly weaker over the year, but not by much. Elsewhere, ST Engineering recorded much healthier free cash flow.

Operational highlights

For the third-quarter of 2016, ST Engineering’s Aerospace business segment experienced a healthy 11% increase in revenue to $563 million.

Meanwhile, the Electronics business segment also had a solid quarter, with sales increasing 9% year-on-year to $466 million.

Land Systems revenue and Marine revenue also inched up. The former recorded a 5% year-on-year increase to $344 million while the latter eked out a 3% gain to $211 million.

ST Engineering ended the third-quarter of 2016 with an orderbook of $11.4 billion, of which $1.4 billion is expected to be delivered in the remaining months of 2016. The company had an orderbook of $12.2 billion a year ago.

Vincent Chong, ST Engineering’s Chief Executive Officer, rounded off the quarter and provided some thoughts on the company’s future with the following comments:

“The Group reported higher Revenue but lower PBT [profit before tax] for the third quarter as well as the first nine months of 2016, compared with the corresponding periods last year.

In 3Q2016, Land Systems sector took a one-off charge of $61.1m, net of non-controlling interests, for its Specialty Vehicle business in China. Excluding the Specialty Vehicle business in China, comprising JHK and GJK which was divested in 2Q2016, Group PBT for 3Q2016 was higher compared to the same quarter last year.

Our operating environments remain challenged by uncertainties in the global economy. Notwithstanding this, the Electronics sector continues to do well, and delivered a strong performance year-to-date. The Group maintained a healthy order book of $11.4b at the end of 3Q2016, with cash and cash equivalents including funds under management of $1.3b after the payment of FY2016 interim dividend of $155m in August 2016.

Barring unforeseen circumstances, the Group expects FY2016 Revenue to be higher, while PBT is expected to be lower than that of FY2015.”

At its opening share price of $3.08 today, ST Engineering trades at around 21 times trailing earnings and has a trailing dividend yield of 4.8%.

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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.