ST Engineering H2 profit rises 19.9% to S$305.9 million

SINGAPORE Technologies Engineering’s (ST Engineering) net profit for the second half ended Dec 31, 2023, rose 19.9 per cent to S$305.9 million from S$255 million in H2 FY2022.

On Thursday (Feb 29), the defence and engineering group attributed its bottom-line increase to strong business growth, higher productivity and cost savings.

Revenue for H2 FY2023 rose 9.9 per cent to S$5.2 billion versus S$4.8 billion a year prior, largely due to higher contributions from the commercial aerospace segment, where revenue grew 29 per cent year on year to S$2.1 billion.

Defence and public security revenue remained flat at S$2.1 billion in the absence of contributions from the recently divested US marine business.

The urban solutions and satellite communications (satcom) business registered a 4 per cent year-on-year revenue growth to S$1.1 billion, due to contributions from transport solutions provider TransCore, which the group had completed acquisition in 2022 for US$2.7 billion. This was offset by weaker contributions from satcom, though the group said transformation efforts since mid-2023 are “on course to drive better future performance”.

Group earnings before interest and tax (Ebit) grew 34.2 per cent to S$470.5 million, driven by growth across all business segments.

ST Engineering’s board proposed a final dividend of S$0.04 per share, unchanged from the previous year. This would bring the group’s dividend for the full year to S$0.16 per share, similar to FY2022.

Earnings per share for the full year rose 9.6 per cent to S$0.1882, from S$0.1718 in FY2022.

On a full-year basis, net profit was up 9.6 per cent to S$586.5 million as revenue climbed 11.8 per cent to S$10.1 billion, the highest recorded.

Net asset value per share was S$0.7896 as at end-December 2023, slightly higher than S$0.7703 as at end-2022.

Group president and chief executive officer Vincent Chong said that the strong full-year results were supported by productivity and cost-saving measures, as well as investments made during the Covid-19 downturn. “Our investment in TransCore became accretive in FY2023, ahead of plan,” he added.

ST Engineering’s biggest-ever acquisition did better in H2, both in terms of revenue and Ebit margin, and has a few projects in the pipeline, he added during an earnings call on Thursday after the financial results release.

As at end-2023, ST Engineering’s order book stood at S$27.4 billion after including new contract wins and adjusting for revenue delivery. The group expects to deliver about S$7.9 billion from its order book in 2024.

DBS Group Research, in a note published after the financial results were released, wrote that the group’s FY2023 revenue was slightly above its expectations by 2 per cent.

The research house noted that the aerospace division should continue to benefit from a sustained rebound in global travel activity. It also anticipates higher output rates in the original equipment manufacturing business, as the group is expected to open more passenger-to-freighter conversion lines while Airbus ramps up its production of A320neo aircraft. “However, cost inflation is still a concern given lingering supply chain disruptions and a tight labour market,” it added.

Jeffrey Lam, president for the commercial aerospace division, pointed out in the earnings call that inflationary pressure is “abating gradually”. In the US where the labour market is tight and demand is huge, these factors have driven some inflation, but he said that ST Engineering has been able to keep labour cost in 2023 “very moderated”.

Chong added that the group always tries to pass the increase in costs to the market. Also, the group managed to cut its unit operating expenses to 11.4 per cent in 2023 from 12.1 per cent in the year-ago period.

DBS observed that other parts of the group’s urban solutions and satcom business also “seem to be performing well”, with the digital business’ revenue growth in the latest financial year “suggesting considerable room for upside”.

The research house had a “buy” call on the stock with a price target of S$4.50 as at Nov 14, 2023.

Shares of ST Engineering were unchanged at S$3.98 at market close on Thursday.