ST Engineering H1 net profit gains 0.2%, expects better days ahead on cash savings
Yong Hui Ting &
Zhao Yifan
ST ENGINEERING reported a net profit of S$280.6 million for the first half ended Jun 30, a marginal 0.2 per cent increase from S$280 million in the corresponding year-ago period. This was in spite of a 13.9 per cent increase in revenue, to S$4.9 billion.
The company’s earnings were hit by a 177.4 per cent increase in net finance costs, to S$92.8 million. Although finance income grew 300.8 per cent, to S$34.4 million, this was insufficient to offset the 202.4 per cent increase in finance costs, to S$127.2 million.
ST Engineering is nevertheless optimistic of a better performance in the second half of the year, especially in its Urban Solutions and Satcom arm, which is due to enjoy cash savings of up to S$60 million over the next five years.
Commercial Aerospace was the best performing segment in the first half of the year, as earnings before interest and taxes (Ebit) rose 60 per cent to S$178 million, from S$111 million (excluding a pension restructuring gain in H1 2022).
Including the one-off gain, however, Ebit would have fallen 3 per cent. Revenue grew 32 per cent to reach S$1.9 billion from S$1.4 billion.
The company said it remained confident on growth in the sector, as travel recovers to pre-Covid level, into a “growth phase”.
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ST Engineering chief executive Vincent Chong said he was optimistic about prospects for the group’s commercial aerospace operations, on the back of sustained efforts investing in expanding hangar capacity even in the trough of the pandemic.
Meanwhile, its Defence and Public Security arm recorded an Ebit improvement of 41 per cent, from S$214 million last year to S$301 million in H1 2023, due largely to business growth, cost savings, a diverse margin mix and an absence of losses from US Marine. Inclusive of the divestment loss of US Marine, revenue was up 4 per cent, to S$2.1 billion.
The group said the improvement came largely on the back of project deliveries, which are expected to continue through the year. ST Engineering also booked new order wins of S$5.2 billion in the first half of this year.
Its Urban Solutions and Satcom division fared the worst; its losses swelled from S$12 million in H1 2022 to S$34 million in H1 2023.
Satcom’s business worsened in the first half of this year due to supply-chain disruptions – specifically in chip shortages; the impact of Covid-19 and a one-off loss of S$24 million on the divestment of SatixFy shares also weighed on the segment’s bottomline.
However, the company said that, excluding Satcom’s weakness and the one-off divestment loss, Ebit for the segment would have been S$30 million higher.
ST Engineering’s earnings per share rose 0.2 per cent to S$0.0901 from S$0.0899.
The directors have approved a second interim dividend of S$0.04 per ordinary share for the quarter ended Jun 30, to be paid out on Sep 1, after book closure on Aug 23. This would take dividends for H1 2023 to S$0.08 per share.
Following a round of “right-sizing”, which entailed lowering the headcount in Satcom by 20 per cent, Chong said the company would now enjoy up to S$60 million in cash savings annually, as staff cost savings are ammortised over the next few years.
The company is also focusing its efforts on building a multi-orbit platform for all its Satcom customers, converging its other platforms into one.
Chief financial officer Cedric Foo said that the merging of the platforms would also lead to reduced engineering hours.
It also expects Transcore – a US transportation company acquired in 2022 – to be earnings accretive in 2024, on the back of project deliveries weighted in the second half of this year.
“We expect 2024 to be stronger than 2023 for Satcom, with the absence of the one-time cost from the divestment of SatixFy shares as well as the strengthening of our base business,” said Chong. He added that the group will provide an outlook on the segment when the full-year’s results are in.
He is also setting a target of tripling the company’s digital business revenue to more than S$500 million by 2026. He added that the company was “making good progress”, and that he expects it to outperform the target.
Shares of ST Engineering closed 0.5 per cent, or S$0.02 up at S$3.74 on Thursday.
*Amendment note: An earlier version of this article wrongly stated that the company’s earnings performance had been affected by a restructuring. The restructuring had in fact resulted in a gain in 2022, which created a higher base effect for 2023 numbers.
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