ST Engineering's Q2 profit up 10% despite revenue dip

Singapore

ST Engineering's second-quarter net profit rose 10 per cent year on year to S$117.5 million on the back of a better sales mix, the absence of additional cost provisions from a maritime project, and a gain from the divestment of its stake in an associate.

This was despite revenue sliding 3.3 per cent to S$1.65 billion for the three months ended June 30, in the absence of the one-time revenue increase for the electronics sector in Q2 2017 from the modification of revenue-recognition estimates.

Earnings per share for the quarter rose to 3.77 Singapore cents, up from 3.43 cents a year ago.

After its announcement in mid-June to redeem all of the outstanding US$500 million 4.8 per cent notes due 2019, ST Engineering accrued the one-time interest cost of S$15.3 million in Q2 2018. The group expects the interest savings to exceed the one-time cost over the next 12 months. The early redemption was completed on July 16.

During the quarter, the aerospace business - its biggest contributor to profit - posted a 26 per cent jump in profit to S$66.6 million on the back of the gain on divestment of associate Airbus Helicopters South-east Asia, and share of higher profits from associates and joint ventures.

Net profit for the electronics sector rose 22 per cent to S$46.7 million, owing to a favourable sales mix and lower operating expenses, while profit for the land systems business dipped 3 per cent to S$20.4 million, partly due to lower revenue and higher operating expenses.

Its marine sector generated a profit of S$9.2 million versus a loss of S$1.4 million previously, driven by a better performance in both its local and US operations; the "others" sector saw losses widen from S$4 million to S$25.4 million, owing to the one-time interest cost from the early redemption of its notes.

At an earnings briefing on Wednesday, president of ST Engineering's aerospace sector, Lim Serh Ghee, said that industry fundamentals remain strong, owing to the growth in the global fleet as well as increased outsourcing of work from airlines, although rising oil prices pose as headwinds.

He does not expect to see negative impact on its maintenance, repair and overhaul (MRO) business as long as oil prices remain at current levels and do not surge past US$90 per barrel.

For the six months ended June 30, 2018, net profit was up nearly 14 per cent at S$235.19 million, while group revenue totalled about S$3.3 billion, or 2.5 per cent higher.

Vincent Chong, ST Engineering president and chief executive, said: "Our aerospace and electronics sectors delivered strong Q2 2018 earnings. Our order book remained robust at S$13.4 billion, contributed by new orders including those in the Smart City spaces. On the whole, we are tracking well on our strategy of strengthening our core as well as actively pursuing growth opportunities in defence exports and Smart City projects."

The board has approved maintaining its interim dividend at five Singapore cents per share, payable Aug 28.

The counter closed at S$3.45 on Wednesday, up four cents.