ST Engineering’s Q3 revenue up 9% to S$2.4 billion; interim dividend at S$0.04 per share

TECHNOLOGY and engineering group ST Engineering reported a 9 per cent increase in revenue to S$2.4 billion for the third quarter ended September, from S$2.2 billion a year prior.

On Friday (Nov 10), the mainboard-listed company also proposed a third-quarter interim dividend of S$0.04 per share, to be paid on Dec 1. This would bring the group’s dividends to date to S$0.12 per share, after a first-quarter and second-quarter dividend of S$0.04 each.

For the nine months ended September, ST Engineering’s revenue stood at S$7.3 billion, or 12 per cent higher than the S$6.5 billion for the same period a year ago. This was mainly driven by the group’s commercial aerospace segment, which reported a 30 per cent increase in contributions to S$2.8 billion from S$2.2 billion in the first nine months of FY2022.

The group’s chief financial officer Cedric Foo said in a call after the release of the Q3 market updates that higher demand for air travel in the Asia-Pacific is expected. This could, in turn, raise the demand for maintenance, repair and overhaul (MRO) services and “represents further upside for our commercial aerospace segment”.

ST Engineering has several hangar sites in Asia for MRO.

But Jeffrey Lam, president of commercial aerospace, acknowledged that the market is “very competitive”, and that it would be challenging for players to raise prices. He added that competition for labour supply and infrastructure is also keen.

Vincent Chong, group chief executive, added that ST Engineering nevertheless expects the margins for passenger-to-freighter conversions to continue to improve, and be Ebit-positive this year. Ebit is earnings before interest and tax.

The profit metric, in percentage terms, is expected to be a low single digit this year and a middle- to high-single-digit in the next two years; thereafter, it will be 10 per cent or more.

Contributions from the urban solutions and satellite segment rose 13 per cent on the year to S$1.4 billion from S$1.2 billion, mainly due to contributions from the group’s subsidiary, TransCore.

However, this was partly offset by lower revenue from the satellite communications business, which faced bigger-than-expected challenges in executing its transformation.

The group said it still expects full-year Ebit contributions from this segment to be profitable, though it is likely to be lower than in FY2022 due to the challenges in the satellite communications business, which is being restructured.

ST Engineering estimates severance costs for this sub-segment to come in at S$7 million for the whole of FY2023, from just S$2 million in H1.

The management said during the update call that the satellite communications business continues to look at cost and process efficiencies, as well as generating more revenue. When asked if any severance expense would be recognised next year, no definitive answer was given.

TransCore, however, remains on track for a second year of earnings accretion, following the group’s completion of its acquisition.

Defence and public security revenue was down 1 per cent to S$3.09 billion from S$3.12 billion the previous year. Lower contributions from this segment were the result of the absence of revenue from the US marine business, which was divested in Q4 of FY2022.

ST Engineering said revenue in defence and public security would have grown 6 per cent, excluding the US marine business.

As at end-September 2023, the group’s order book stood at S$27.5 billion, up 20 per cent year on year from S$23 billion. Of that sum, S$11.7 billion were new contracts for the period under review. 

Orders worth about S$2.5 billion from this year’s order book are expected to be delivered in the remaining months of 2023.

Over the third quarter alone, the group reported S$2.2 billion in new contract wins, which were mainly from the defence and public-security segment.

DBS Group Research noted that this represented a drop from the contract wins in the previous two quarters, which had ranged from S$4.7 billion to S$4.9 billion.

But it added that the fall was “not a cause for concern” because Q3’s S$2.2 billion was a “normalised” level, and that contract wins in the previous two quarters were higher than usual.

CEO Chong said: “I want to say that the order book ebbs and flows by the quarter, so we are not focused on any individual quarter’s order book or new contract wins, but generally, the trajectory and the momentum has been very healthy.”

Meanwhile, ST Engineering is monitoring the situation for supply-chain disruptions, though the impact for now is “very minor”, Chong added. “We certainly have mitigating steps in place to address the near-term impact, but as I’ve said, it’s something very minor.”

While ST Engineering’s third quarter revenue marginally exceeded expectations, DBS said it expects the group’s satellite communications business to remain a drag on overall earnings.

Shares of ST Engineering were trading at S$3.76 or 1.6 per cent lower at 2.40 pm on Friday, after the updates were published.