The earnings season is almost winding down but a few results are still trickling in.
We saw strong sets of results from blue-chip firms City Developments Limited (SGX: C09) and local carrier Singapore Airlines Limited (SGX: C6L).
Yet another blue-chip name, Singapore Technologies Engineering Ltd (SGX: S63), or STE, has turned in its fiscal 2023’s first half (1H 2023) report card.
The engineering group saw revenue growth for all three divisions and reported a record-high order book.
Here are five highlights from STE’s 1H 2023 earnings report.
1. Stronger financials with higher cash flow generation
For 1H 2023, STE’s revenue climbed 13.9% year on year to S$4.9 billion, buoyed by a year-on-year increase in revenue across all its three core divisions.
Operating profit jumped 16.8% year on year to S$420.8 million.
However, the group saw its finance costs nearly triple year on year from S$40.6 million to S$114.1 million.
The higher interest expenses arose due to debt taken up to finance STE’s acquisition of TransCore and other aviation assets.
Because of this, net profit inched up just 0.2% year on year to S$280.6 million.
STE measures its core “base operating performance” (BOP) after excluding exceptional charges and one-off expenses.
Using this metric, its BOP net profit would have been 26% higher year on year at S$300 million.
The group also more than doubled its operating cash flow to S$856.8 million for 1H 2023.
The engineering group generated a positive free cash flow of S$521.1 million for the same period, reversing the free cash outflow of S$155.6 million in 1H 2022.
A second interim dividend of S$0.04 per share was declared, bringing its 2023 annualised dividend to S$0.16.
2. Recovery continues for commercial aerospace
Revenue for the commercial aerospace (CA) division climbed by 32% year on year to S$1.9 billion for 1H 2023, aided by the continued recovery in air travel and higher aircraft sales.
Operating profit for the division, however, dipped by 3% year on year to S$177.5 million primarily due to a one-off pension restructuring gain of S$72 million recorded in the prior year.
Excluding this amount, operating profit would have shot up 60% year on year.
The CA division secured a total of S$3 billion in new contracts for 1H 2023.
There could be better news to come for the division as total air travel reached 96% of pre-COVID levels in May 2023.
3. A stellar performance by Defence & Public Security
For the Defence & Public Security (DPS) segment, revenue edged up just 0.4% year on year to S$2.1 billion.
If the US Marine division’s revenue was excluded (as this division was divested late last year), then DPS revenue would have grown by 6% year on year.
The division’s operating profit surged 41% year on year to S$300.7 million on the back of stronger business growth and better margins along with the absence of losses from the US Marine division.
DPS also secured strong contract wins of S$5.2 billion in 1H 2023, of which more than S$100 million came from customers in Europe and the Middle East.
4. A larger loss for Urban Solutions and Satcom
For Urban Solutions and Satcom (USS), revenue increased by 18% year on year to S$891 million.
The better performance was contributed by Urban Solutions’ various projects such as the New York Congestion Pricing Project, TransCore, and Smart Mobility Rail and Road Projects in Taiwan.
USS, however, saw its operating loss more than doubled from S$12.1 million in 1H 2022 to S$34.1 million.
Reasons included supply chain disruptions for its satellite communications business (Satcom) because of chip shortages and expenses related to business restructuring.
There was also a S$24 million one-off loss recognised from the divestment of SatixFy.
SatixFy was purchased for US$7 million back in 2014-2015 and sold off for just US$1.5 million in April this year.
5. STE builds a record-high order book
In total, around S$9.5 billion of new contracts were secured in 1H 2023, of which S$4.7 billion were for the second quarter of this year.
These order wins pushed STE’s order book to a record high of S$27.7 billion as of 30 June 2023, with S$4.4 billion expected to be delivered in the remainder of this year.
STE is working on reducing its debt load from the current S$6.2 billion to the mid-S$5 billion level by the end of this year through operating cash flow generation and aviation asset sales.
Its weighted average cost of borrowing is projected to rise from the low-3% level this year to the mid-3% level in 2024.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.