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ST Engineering’s Order Book Hits S$22.2 Billion: 5 Highlights from the Group’s Latest Earnings

Satellite and Plane Engine
Satellite and Plane Engine

Singapore Technologies Engineering Ltd (SGX: S63), or STE, is riding on growth tailwinds to post a set of better earnings for its fiscal 2022’s first half (1H2022).

The engineering, technology and defence group reorganised itself in late 2020 and laid down a new five-year growth plan during its Investor Day in November last year.

It seems that this plan is bearing fruit, judging by the performance of STE’s various divisions for 1H2022.

The group has also won new contracts after integrating last October’s TransCore acquisition and expects the smart city player’s cash flow for its first year to be positive.

Here are several key highlights from the engineering giant’s 1H2022 results.

1. A better overall financial performance

Revenue for STE grew 17% year on year to S$4.3 billion for 1H2022.

Operating profit rose 8% year on year to S$384.6 million despite the absence of COVID-19 government grants.

However, finance costs more than doubled year on year to S$33.5 million as the group took on loans to finance the purchase of TransCore.

Total debt for STE nearly tripled in the last six months from S$2.1 billion to S$6.2 billion.

As a result, net profit dipped by 5% year on year to S$280 million.

Net profit would have been higher by 4% year on year if the jobs support scheme and TransCore transaction and integration expenses were excluded.

2. Revenue growth across all divisions

STE enjoyed revenue growth across all three of its divisions, namely Commercial Aerospace, Urban Solutions & Satcom (satellite communication), and Defence & Public Security.

Revenue for Commercial Aerospace surged 78% year on year to S$183 million, led by the aerostructures & systems sub-division that saw a 33% year on year rise in revenue to S$825 million.

The assets under management for the aviation management portfolio jumped 58% year on year to US$1.4 billion.

Urban Solutions & Satcom saw its revenue rise 43% year on year to S$757 million.

Within the division, urban solutions managed a 68% year on year increase in revenue to S$585 million but Satcom saw revenue dip by 3% year on year due to semiconductor chip shortages.

The Defence & Public Security division enjoyed a 6% year on year rise in revenue to S$2.1 billion, with defence aerospace, digital systems and land systems sub-divisions reporting year on year rises in revenue.

The increase was offset by a slightly weaker performance from the Marine sub-division, which saw revenue slip by 1% year on year to S$385 million.

3. Higher operating profit for all segments

STE looks at its base operating performance (BOP) that excludes the effects of government support, one-off items, and acquisition expenses.

Based on this definition, BOP operating profit jumped by 45% year on year to S$333 million.

All three divisions also saw higher operating profits when measured using BOP metrics.

Commercial aerospace saw a 78% year on year surge in operating profit to S$183 million.

Urban Solutions & Satcom’s BOP operating profit would have increased by S$1 million from S$11 million last year.

Defence & Public Security division would have reported a 5% year on year increase in operating profit to S$214 million if government support of S$36 million was excluded.

4. Boosting its order book

The engineering group secured total contract wins of S$3.2 billion for the second quarter (2Q022), with the bulk coming from Commercial Aerospace (S$1.2 billion) and Defence & Public Security (S$1.4 billion).

This amount was even higher than the S$2.4 billion worth of contracts snagged in 1Q2022 and is a testament to STE’s ability to grow its order book.

In total, S$5.6 billion of contracts were secured in 1H2022.

Some examples of the contracts signed include those for smart street lighting in Brazil and tolling projects and RFID tag sales in the US and Dubai.

The group’s order book stood at S$22.2 billion as of 30 June 2022, the highest in the last five years.

5. Interim dividend declared

STE has declared its second quarterly interim dividend of S$0.04 per share.

Annualised dividend stands at S$0.16, and its shares provide a forward dividend yield of 3.9%

Get Smart: Full steam ahead

CEO Vincent Chong is optimistic about the group’s future.

STE has held up well despite challenging conditions in 1H2022, with cost savings and increased productivity more than offsetting the reduction of S$125 million of government support.

Looking ahead, he believes that the TransCore acquisition will continue to power the growth of the smart cities sub-division, while the group’s order book provides revenue visibility over the next few years.

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.

The post ST Engineering’s Order Book Hits $22.2 Billion: 5 Highlights from the Group’s Latest Earnings appeared first on The Smart Investor.