ST Engineering gets S$100m foreign state aid to invest to keep jobs
MAINBOARD-LISTED ST Engineering received S$100 million more in government support which it had not expected, but not all of this will be translated into earnings as investments will be made in facilities and talent to help keep jobs and capitalise on upturn post-pandemic.
The company released financial results for the first half of FY2021 ended June on Thursday, and the extra state aid - primarily from governments of foreign jurisdictions where ST Engineering operates - became the focus of an earnings call.
Earlier, it had guided a reduction of S$250 million in state aid in 2021, but now it expects the cut in government support to be only S$150 million, with the impact of the reduction to mainly show up in the second half of 2021.
The company's management was, however, quick to point out that the last-minute additional government support was granted with conditions such as maintaining jobs amid a pandemic that has lasted beyond expectations with slow recovery in commercial aerospace.
Chief executive officer Vincent Chong said that ST Engineering will make re-investments in overseas facilities, including setting up passenger-to-freighter lines in the United States, as the group takes on more inductions amid booming e-commerce.
"We are on plan to induct about 30 aircraft for conversion this year. Next year, we'll be inducting over 55 aircraft, instead of the 40 aircraft which we last shared," Mr Chong noted.
"Now, this is indicative of a significant ramp-up in demand in the results of the investment we have been making to increase conversion capacity and the number of conversion lines. All our slots for A330 passenger-to-freighter conversion have been booked through 2023. And we are fully booked to mid 2024 for our A320/321 programme."
The company stated that it will have eight production lines by the end of this year and 12 at the end of next year, up from five last year. While it sees turnover contribution to the commercial aerospace segment as a result, the earnings before interest and tax may not benefit significantly in the short term as investments are still being made and incur costs.
Mr Chong noted parts of the urban solutions and satellite communications segment were affected by the global chip shortage, but he said the impact on the group level was "not material". Meanwhile, it will engage customers to adjust project milestones or delivery schedules while working on alternative supply chain.
The contracts ST Engineering secured in the April-June quarter were worth over S$1.8 billion, boosting its order book to S$16.8 billion as at end-H1 FY2021, with S$3.6 billion worth of orders expected to be delivered in H2.
Net profit came in 15 per cent higher at S$296.1 million for H1 FY2021, as government support helped cushion the impact on commercial aerospace, earnings before interest and tax of was S$25 million lower without the relief.
The commercial aerospace segment saw a 10 per cent year-on-year drop in revenue for H1 FY2021, but was more than offset by the 12 per cent increase posted by the urban solutions and satellite communications segment and the 8 per cent improvement by the defence and public security segment. This resulted in a marginal 2 per cent rise in total revenue to about S$3.7 billion.
The commercial aerospace segment contributed 31 per cent of the top line, while those from urban solutions and satellite communications segment and the defence and public security segment made up 15 per cent and 54 per cent respectively.
Earnings per share stood at 9.5 Singapore cents for H1 FY2021, up from 8.26 cents in H1 FY 2020, while net asset value per share as at end H1 was S$0.727 compared with S$0.7149 a year ago. The company will pay an interim dividend of five Singapore cents per share on Aug 31.
The counter closed 1.24 per cent higher at S$4.08, after its financial performance was released.
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