ST Engineering revenue soars 15% in 1Q11

Despite a jump in its revenue to S$1567.2mln, the company still experienced a margin squeeze due to product mix. at around 18.8% vSome margin squeeze in 1Q11.

Gross margin only came in around 18.8% in 1Q11 versus 19.8% in 1Q10 and 23.0% in 4Q10.

Net profit increased 19.7% YoY to S$111.1mln.

The boost to STE's revenue came from the Aerospace and Electronics divisions, which reported a 1.5% increase in revenue YoY to S$450mln and a 23.6% YoY jump in revenue to S$444mln, respectively.

In a statement, OCBC Investment Research noted that other segments of ST Engineering turned in “slightly mixed performance,” including Land Systems, which registered a 35.0% YoY revenue increase, and Marine, whose revenue grew 6.3% YoY.

In terms of profitability, the analyst pointed out that most divisions except for Aerospace, which has a 12.6% PBT margin in 1Q11 versus 9.6% in 1Q10, saw lower margins compared to the same quarter a year ago, although
overall PBT margin was comparable at 8.8% versus 8.6%.

OCBC said STE expects overall PBT in 1H11 to remain "comparable" to 1H10,with Aerospace and Electronics likely to show PBT growth, while Land Systems and Marine will see "comparable" PBT to that of 1H10.

"Nevertheless, [STE] management still believes that it should see higher revenue and PBT for FY11, suggesting
that profitability is likely to pick up in 2H11," the analyst said.

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