3 Bright Spots From ST Engineering Ltd's (SGX: S63) 2020 Financial Results
The global engineering group posted its earnings for 2020 before market open today.
Let’s find out how it performed amid the pandemic.
Business Hit By COVID-19, But…
ST Engineering’s revenue for 2020 tumbled 9% year-on-year, from S$7.87 billion in 2019 to S$7.16 billion.
The decline in the top-line was mostly due to the impact of COVID-19 on the group. There were 1) reduction in customer demand, 2) supply chain challenges, and 3) workforce disruption during the year.
ST Engineering’s aerospace segment was hit the most as passenger air travel was almost brought to a standstill.
The following shows ST Engineering’s revenue performance by sector:
ST Engineering’s net profit for 2020 declined by 9.7% to S$521.8 million.
On top of lower revenue, the group’s bottom-line fell due to impairment of intangible assets and fair value changes of associates on the back of COVID-19.
Also, the group’s US shipbuilding business saw losses in the execution of several projects that were contracted and priced at the trough of the marine industry cycle.
However, savings from productivity and cost reduction initiatives and government support helped to reduce the net profit decline.
Consequently, diluted earnings per share (EPS) fell from 18.42 Singapore cents in 2019 to 16.64 cents in 2020.
Now, let’s turn our attention to ST Engineering’s balance sheet, which strengthened for the year.
As of 31 December 2020, ST Engineering had S$730.6 million in bank balances and other liquid funds, and total debt of S$2.05 billion. This translates to a net debt position of S$1.32 billion.
In comparison, at the end of 2019, it had S$1.89 billion in net debt.
Here’s another feather on ST Engineering’s cap.
The group’s cash flow from operations for 2020 rose to S$1.53 billion, up 160% year-on-year. With capital expenditure of around S$200 million, free cash flow (FCF) improved to S$1.33 billion, up from S$299.8 million a year back.
ST Engineering’s strong FCF generation, despite the pandemic, is the biggest standout for me.
FCF is cash that can be used by a company to reinvest into its own business, pay off its borrowings, buy back its own shares, or dish out dividends to its shareholders.
ST Engineering’s board has proposed a final dividend of 10.0 cents per share.
Together with the interim dividend of 5.0 cents already paid out, the total dividend for 2020 would be 15.0 cents per share, unchanged from 2019.
The 2020 dividend represents a payout ratio of 90% in terms of EPS and 35% in terms of FCF.
So, ST Engineering’s dividend is well-covered.
Ending Off The Year With Higher Order Book
Despite the COVID-19 challenges, ST Engineering ended 2020 with an order book of S$15.4 billion, slightly higher than the order book at end-2019. In 2021, about S$5.3 billion of the orders is expected to be delivered.
As for its outlook, Vincent Chong, president and chief executive of the defence and engineering giant, said:
“Going into 2021, we expect recovery to be uneven across the industries we participate in. The aviation industry remains subdued and is unlikely to recover to pre-pandemic levels in 2021. Nevertheless, we are focusing on delivering our order book, seizing new opportunities in areas like freighter conversions and cybersecurity. With partial revenue recovery, when combined with savings from our cost reduction initiatives, we target to offset the effects of lower government support in 2021.”
Going into 2021, ST Engineering moved into a new organisation structure of commercial and defence & public security from January to better serve its customers and position itself for long-term growth.
At ST Engineering’s share price of S$3.73, it has a price-to-earnings ratio of 22 and a dividend yield of 4%.
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