ST Engineering Keeps its Dividend Unchanged: 5 Highlights from its Full-Year Earnings

Royston Yang
·5-min read
ST Engineering Keeps its Dividend Unchanged: 5 Highlights from its Full-Year Earnings

Singapore Technologies Engineering Ltd (SGX: S63), or STE, is a blue-chip engineering conglomerate with a portfolio of diverse businesses.

The group has offices across Asia, Europe, the Middle East and the US and serves customers in more than 100 countries.

Recently, STE released its full-year 2020 earnings.

The impact of COVID-19 was clear and resulted in reduced customer demand and interruptions in its supply chain.

Lockdowns also disrupted STE’s workforce deployment, leading to delays in the completion of contracts.

In light of the above, STE’s revenue fell 9% year on year to S$7.2 billion while attributable profit declined by 10% year on year to S$521.8 million.

We take a look at five highlights from the engineering giant latest earnings report.

1. A mixed set of numbers

The group has four distinct divisions: aerospace, electronics, land systems and marine.

There was a mixed bag of numbers as the pandemic affected each division in different ways.

Aerospace was the most badly impacted division, with full-year revenue plunging by 21% year on year to S$2.7 billion.

A lower volume of maintenance, repair and overhaul (MRO) activities, as well as asset impairments, led to a 28% year on year fall in net profit for the division.

Electronics and Land Systems fared better, with year on year revenue declines of just 2% and 1%, respectively.

With government assistance in the form of the Jobs Support Scheme (JSS) and cost-savings, these two divisions saw net profit rising year on year.

For the Marine division, revenue increased by 10% year on year due to contributions from the US shipbuilding side.

However, net profit for the division plunged 45% year on year as some contracts were entered into at the trough of the marine industry back in 2018.

2. Robust order book

Despite the tough conditions, STE still managed to clinch contracts in the fourth quarter of 2020.

Both Aerospace and Electronics divisions secured a total of S$1.3 billion in new contracts during the quarter, underscoring the group’s resilience.

Total contract win hit S$5.7 billion for the whole of 2020, bringing order book to S$15.4 billion as of 31 December 2020.

In fact, STE’s order book for 2020 was even higher than the S$15.3 billion recorded at the end of 2019, an impressive feat considering the pandemic was severely disruptive.

Around S$5.3 billion of the order book is expected to be delivered in 2021.

3. Reduced government assistance

STE received government assistance amounting to about S$350 million in 2020, helping to offset some of the negative impact from COVID-19.

Without the help of the JSS and other grants, STE’s net profit would have plunged 70% year on year to S$172 million.

For 2021, this assistance will taper off substantially to just S$100 million, implying a reduction of S$250 million in support.

Management expects to be able to offset this lower support through a combination of cost savings and a nascent business recovery.

4. An uneven recovery

As STE heads into 2021, CEO Vincent Chong has warned that recovery is expected to be uneven for the group.

Sectors such as aerospace and marine continue to remain depressed, with aviation not expecting any recovery this year.

The group will focus on delivering its order book, barring significant disruptions caused by a resurgence in global infections.

STE will also explore opportunities in new verticals such as freighter conversions and cybersecurity to mitigate this lull period.

While the going may not be easy, the group’s strong track record and history of resilience should stand it in good stead to navigate through this crisis.

5. Dividend holds steady

Despite the weaker results, the group has maintained its final dividend of S$0.10 per share.

The total dividend for the fiscal year 2020 stayed constant at S$0.15, in line with prior years.

The pay-out ratio is close to 90% due to STE’s 10% year on year decline in earnings per share to S$0.1674.

The dividend will be funded out of past years’ retained earnings.

At the current share price of S$3.82, STE’s shares provide a trailing 12-month dividend yield of 3.9%.

Get Smart: Reorganisation may lift prospects

From 2021, STE will have a new reporting structure consisting of two key clusters — Commercial, and Defence & Public Security.

This reorganisation was announced last November as the group gears up to strengthen its core business and better align the business for future growth.

The focus will be to grow the smart city and international defence business divisions, while a new Group Technology Office will also help with research and development into new, promising technologies.

All in, this new structure may spell better prospects for STE and allow it to recover more swiftly from the adverse effects of the crisis.

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

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