Yahoo Finance ST Engineering’s 2023 Core Net Profit Jumped 24% Year-on-Year: 5 Highlights from its Latest Earnings Report
With the earnings season winding down, one of the last blue-chip stocks to report its 2023 earnings is Singapore Technologies Engineering Ltd (SGX: S63), or STE.
The engineering giant pulled off an impressive performance with healthy top and bottom-line growth for last year.
The group also paid out a quarterly dividend of S$0.04, bringing 2023’s total dividend to S$0.16, the same as what was paid out the year before.
Here are five salient highlights from STE’s latest earnings report that investors should know about.
1. A robust financial performance
2023 saw STE’s revenue rise 11.8% year on year to S$10.1 billion, with revenue growth coming from all three of the group’s segments.
Operating profit jumped 24.4% year on year to S$914.7 million but included a divestment loss for Satixfy along with severance costs from the Satellite Communication (Satcom) division.
2022 also saw a pension restructuring gain of S$72 million.
Adjusting for these one-off items, STE’s operating profit would have been 40% higher year on year at S$946 million.
Net profit increased by 9.6% year on year to S$586.5 million despite finance costs jumping nearly 53% year on year to S$210.4 million because of higher interest rates.
Stripping out the one-off items again, the engineering giant’s net profit would have climbed 24% year on year to S$610 million.
STE also generated a positive free cash flow of S$562.6 million for 2023, a sharp reversal from the free cash outflow of S$293 million in the prior year.
2. The commercial aerospace division is taking off
STE’s commercial aerospace (CA) division enjoyed a strong performance for 2023 with revenue jumping 31% year on year to S$3.9 billion.
All three of CA’s sub-segments saw year-on-year revenue growth with aerospace MRO (maintenance, repair and overhaul) posting the largest increase at 41%.
Aviation asset management’s assets under management grew 14% year on year to US$2.1 billion.
Segment operating profit (excluding pension restructuring gain in 2022) shot up 47% year on year to S$337 million.
Aerospace MRO sub-division grew in line with the market recovery and the asset management arm will focus on building up its portfolio while conducting capital recycling activities.
3. A strong order book for the Defence & Public Security division
Over at the Defence & Public Security (DPS) division, revenue rose 6% year on year to S$4.3 billion if the US Marine division was excluded.
Growth came mainly from the Digital Systems and Cyber sub-division which saw an 11% year on year revenue increase to S$1.7 billion.
The Land Systems sub-division revenue inched up 2% year on year to S$1.6 billion but the Defence Aerospace sub-division revenue stayed constant at S$471 million for 2023.
Operating profit leapt 40% year on year because of a combination of margin mix, business growth, and cost savings.
DPS made good progress expanding in new markets and snagged contracts worth close to S$950 million internationally in 2023.
Its Cloud, AI Analytics and Cyber sub-division plans to enhance its digital products and solutions.
4. A downbeat performance for the Urban Solutions and Satcom division
STE’s third and smallest division, Urban Solutions and Satcom (USS) saw a downbeat performance for 2023 because of Satcom.
Although revenue improved by 10% year on year to S$1.9 billion, operating profit plunged by two-thirds year on year to end at just S$10 million.
The good news is that STE’s TransCore acquisition contributed profits to the group earlier than expected.
The division also saw its first international airport security win for Dhoho Kediri International Airport in Indonesia.
The Smart Mobility sub-segment also saw better business volume in the second half of 2023 with a road project in Abu Dhabi and rail projects in Chennai (India), Sydney (Australia) and Ontario (Canada).
For Satcom, management will unveil the next-generation platform (NGP) brand in the first half of 2024 while continuing to optimise costs and improve its processes.
5. Bulking up its order book
STE secured a total of S$14.8 billion in new contracts for 2023, with S$3.1 billion snagged in just the fourth quarter alone.
Of the S$3.1 billion, around half went to the DPS division while S$1 billion went to the CA division.
The remaining S$645 million belonged to the USS division and included smart water metering systems in the US and platform screen door contracts for the Sydney Metro.
STE’s order book stood at S$27.4 billion as of 31 December 2023, of which S$7.9 billion is expected to be delivered (and recognised) this year.
This level of order book was slightly lower than the S$27.5 billion reported three months ago.
Get Smart: Healthy dividends and a confident outlook
STE has delivered an admirable performance in a difficult year with all divisions enjoying year-on-year revenue growth.
The engineering group also paid out consistent dividends amounting to S$0.16 in 2023, giving its shares a trailing dividend yield of 4%.
CEO Vincent Chong provided a confident outlook for 2024.
STE will remain focused on executing its order book and delivering sustainable growth for investors.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
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