ST Engineering’s H2 net profit slips 7.1% on energy inflation, higher expenses, lower state support

ST ENGINEERING’S net profit for the second half of the year ended Dec 31, 2022, fell 7.1 per cent to S$255 million from S$274.4 million, due to energy inflation, higher expenses from its unit, Transcore, and reduced government support, the group said on Friday (Feb 24).

Revenue in H2 was, however, 17.9 per cent higher at S$4.8 billion, from S$4 billion in the same period a year earlier.

Earnings per share for the full year fell to S$0.1718, from S$0.183 previously.

The group has proposed a final dividend of S$0.04 per share, to be paid on May 9 after the books are closed on Apr 27. If approved by shareholders, it would take dividends for FY22 to S$0.16 per share, slightly higher than the S$0.15 in FY21.

For the full-year, ST Engineering’s net profit dipped 6.2 per cent to S$535 million from S$570.5 million. Revenue rose 17.4 per cent to S$9 billion, up from S$7.7 billion in 2021.

Chief executive Vincent Chong said during the company’s earnings call on Friday that ST Engineering had a “strong recovery in our underlying performance” despite the challenging operating environment.

The group’s earnings before interest and tax (Ebit) for the full year rose 9.1 per cent on year to S$735.1 million, despite the reduction of some S$203 million in Covid-related government support.

By segment, revenue for the group’s commercial aerospace arm grew 21 per cent to nearly S$3 billion on the back of aviation recovery in the post-pandemic environment. Chong expects further improvement in this segment, especially in the Asia-Pacific region, and with the reopening of China.

He noted that their Airbus passenger-to-freighter (PTF) conversion slots for A320/A321 and A330 aircraft are fully booked until 2026.

ST Engineering’s PTF programme’s gross profit margin also turned positive in Q4 2022. The group is aiming to achieve Ebit margin breakeven “sometime this year”, said Jeffrey Lam, head of commercial aerospace.

He also provided an update on the group’s aviation asset securitisation plans, and said it is targeting to do so by the middle of the year to free up around S$500 million in cash.

Meanwhile, revenue from the group’s Urban Solutions & Satcom segment grew 49 per cent on year to S$1.8 billion, boosted by the Transcore acquisition that was completed in March 2022.

The group noted that Transcore has turned cashflow positive in 2022, and they expect it to be earnings accretive for FY2023.

Revenue from the Defence & Public Security segment grew slower than that of the other segments, rising 6 per cent to S$4.3 billion. Ebit for the segment was down 13 per cent on year to S$405 million.

Ravinder Singh, group chief operating officer, noted that the loss-making US marine subsidiaries had an impact on the segment’s performance, but these had been divested in end-2022.

“We’ve mentioned before the losses for US marine range from US$40 million to US$60 million, and last year, of course, it was significant,” he said. “We won’t be having that overhang, and that will certainly be a positive impact on the margins.”

Chong said: “Portfolio optimisation is a continuous process, taking into account our long-term view of our businesses.”

ST Engineering also announced on Friday that it wound down its autonomous bus unit at the end of 2022, redeploying its staff elsewhere. 

“The financial resources needed for these continuing efforts are significant, estimated at more than S$150 million in the next five to seven years,” Chong said. “We will continue to prioritise businesses that play to our strengths and are attractive and are scalable.”

During the FY, ST Engineering said that all segments won sizeable new contracts. Its order book is growing to S$23 billion.

“We are well-positioned and are optimistic about our future to deliver strong shareholder value,” Chong added.

Separately on Friday, ST Engineering also said its chairman and independent director, Kwa Chong Seng, who has been on the board since Sept ember2012, would step down on Apr 21 as part of its board renewal. The group’s deputy chairman, Teo Ming Kian, will replace him as chairman.

ST Engineering shares rose S$0.01 or 0.3 per cent on Friday to close at S$3.56.