By Carey Wong
Wed, 18 Feb 2009, 08:50:32 SGT

Market Pulse: ST Engineering, Soilbuild and Avi-Tech (18 Feb 2009)

FOCUS

Singapore Technologies Engineering: Guides for resilience in 2009

Summary: Singapore Technologies Engineering (STE) showed resilience when reported its FY08 results yesterday. Topline grew 5.8% to S$5.3b while PATMI shrunk by 5.9% to S$473.6m. However, 4Q08 was marred by write-downs in its listed investments and doubtful debts. STE sustained its record high order book of S$10.6b and continued its 100% PATMI payout policy by declaring a final dividend of 12.8 S cents (6.1% yield). STE guided for a higher turnover with a “comparable” PBT on the back of delivery of S$3.63b of its order book in FY09 and recurrent businesses not reflected in the order book. We are also enthusiastic that STE will be able to win more and bigger military contracts as it steps up to a higher pedestal with its recent wins with the UK armed forces. Our FY09F estimates are largely unchanged but we are upgrading our rating to a BUY based on valuations. Our fair value remains unchanged at S$2.31 as we peg it to the company’s trough valuation (15x FY09F PER) during the 2003 SARS period. (Kelly Chia)


Soilbuild Group Holdings Ltd: Strong 4Q08 results

Summary: Soilbuild Group reported a good set of results for 4Q08. Revenue grew by 46% YoY to S$50.0m, underpinned by the progressive recognition of revenue from Leonie Parc View, Montbleu, Centrio and Espa. Although revenue fell short of our expectation of S$80.2m, this was due to the difference between the completion status of the projects and our recognition schedule and we expect the shortfall to be recognised in the coming quarters. A one-off gain of S$25.6m from the revaluation of Tuas Connection factories was recognised in the quarter. 4Q08 PATMI increased by 60% YoY to S$30.5m. Excluding revaluation gains in 4Q08 and 4Q07, we estimate that the underlying PATMI would have jumped by approximately 100% YoY to S$9.2m. Balance sheet position turned out to be better than expected, with a net gearing ratio of 1.9x (against our expectation of 2.1x) at the end of FY08. We are putting our HOLD rating and fair value of S$0.77 under review and will provide further updates after the analyst briefing this morning. (Foo Sze Ming)


Avi-Tech Electronics Limited: Cautiously confident to remain profitable

Summary: Avi-Tech recently posted a soft set of 2QFY09 results, led by a substantial reduction of orders within its core business segments. Despite this, the group had managed to improve its margins and net cash position to S$46.6m (~S$0.13 net cash/share). In face of the worsening global economy, Avi-Tech is expecting the poor consumer sentiment and overall business activity to further weaken and impact its businesses in the coming months. On a brighter note, the group is cautiously confident that it is able to remain profitable. We have since lowered our FY09 forecasts by 10-14.4% in anticipation of an especially weak Jan-Mar period (3QFY09). However, we are now reasonably convinced of Avi-Tech’s ability to manage its costs and uphold its profitability at healthy margins. As Avi-Tech is likely to remain cash positive, we raise our valuation metric from 4x to 6x PER and peg it to FY10F EPS, hence deriving a fair value of S$0.11 (15% discount to its net cash/share). Upgrade to HOLD as share price looks fairly priced. (Kevin Tan)


For more information on the above, visit www.ocbcresearch.com for the detailed report.


NEWS HEADLINES

- STATS ChipPAC said it will not proceed with its capital reduction and cash distribution exercise as it has not been able to obtain debt financing on satisfactory terms.

- Indofood Agri has warned of significant non-cash biological asset revaluation losses of IDR1115b for 4Q08; but still expects to be profitable for the year.

- In response to SGX’s query, Dayen Environmental said its higher sales came from projects in Cambodia, Oman and Singapore. Higher gross profit margins were due to greater contribution from overseas projects with better margins.

- Despite a 23% rise in revenue to S$168m for FY08, Challenger’s net profit fell 24% to S$5.35m, partly due to a jump in “other charges” from S$470k to S$3.8m.

- EMS Energy has warned of a higher loss for FY08 versus the S$1.78m loss incurred in FY07.

- Pine Agritech expects to record lower revenue and profit for 4Q08 compared to 4Q07.

- China Auto Electronics expects losses in 4Q08 and FY08 due to lower revenues in its China operations and inventory write-down.

- Equation Corp said a fire occurred at noon in the factory/warehouse of its subsidiary, CH E-Recycling Pte Ltd.