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ST Engineering
Nov 5 close: S$2.97
DBS GROUP RESEARCH, Nov 4
 THIRD quarter 2009 revenue of S$1.35 billion (down 2 per cent year-on-year, 4 per cent quarter-on-quarter) and net profit of S$120 million (down 7 per cent y-o-y, up 11 per cent q-o-q) were in line, and nine-months 2009 net profit of S$314 million equates to 74 per cent of our full year projections.
Q3 2009 pre-tax profit of S$149 million, though, was higher, driven by strong performances in the aerospace and land systems segments.
Margin recovery in aerospace to Q3 2008 levels: Aerospace pre-tax profit climbed 15 per cent q-o-q, as margins improved further to 15 per cent versus12 per cent in Q2 2009 - on the back of profitable passenger-to-freighter (PTF) conversions.
Land systems pre-tax profit jumped 62 per cent q-o-q on the back of a better product mix.
Orderbook at the end of Q3 stood at S$10.3 billion, down slightly from the end-Q2 number of S$10.7 billion.
About S$0.9 billion of this will be delivered in Q4.
However, going by the S$865 million of order wins already announced in October, the orderbook should be more than replenished at the end of Q4.
Our earnings estimates for FY2009 remain unchanged, since Q4 may be impacted by a weaker US dollar.
However, given our view that the maintenance, repair and operations (MRO) players could lead the recovery in the air travel industry, and given the better visibility of the profitability of the PTF conversions, we re-look our assumptions for the aerospace segment and revise up our FY2010 and FY2011 earnings per share (EPS) estimates by 6 per cent and 3 per cent, respectively.
Our target price is correspondingly revised to S$3.30 from S$3.10, still pegged to 20x FY2010 earnings.
While ST Engineering has outperformed the Straits Times Index since our recent upgrade, we believe it still has some way to run, given that it is still trading at valuation premiums much lower than the historical average of 40 per cent. Maintain 'buy'.
BUY
F J Benjamin Holdings
Nov 5 close: 30.5 cents
KIM ENG RESEARCH, Nov 5
 F J Benjamin (FJB) posted a 58 per cent y-o-y decline in Q1 FY2010 (three months to end-September 2009) net profit to $0.46 million, but its earnings have turned around from a $2.5 million loss in Q4 FY2009.
Although the earnings recovery was slower than we have expected, we believe that there is scope for its earnings momentum to accelerate, given the improving global economic outlook.
A rebound in all businesses segments points to a rosier outlook.
The rebound in revenue sequentially across all business segments, coupled with better operating efficiencies (expenses were flat against revenue growth of 9.5 per cent) suggests that FJB is on track for a recovery.
We believe there could be more earnings upside coming from easing rental pressures through its on-going renegotiations with the landlords, as well as rising supply of retail space in Singapore.
The group's balance sheet remains strong with improving gearing from 0.2x to 0.15x.
Net cash generated from operating activities remained positive at $2.6 million, reflecting its sound working capital management.
In fact, FJB's ability to generate positive free cash flows over the last few quarters despite the crisis is testimony to its acute management expertise.
The beginning of the festive period in Q2 FY2010, coupled with an improving consumer sentiment bodes well for its earnings momentum ahead.
With an enlarged store network of 172 stores across Asia compared to the 138 in the previous up-cycle, the group is well-positioned to benefit from the rejuvenation in the retail scene, in particular Singapore where the integrated resorts with casinos and new malls in Orchard come forth next year.
We have lowered our earnings estimates in FY2010 by $1.5 million to factor in the sharper-than-expected revenue decline in Q1 FY2010.
Our discounted-cash-flow derived target price is reduced slightly to 42 cents from 45 cents.
Given its enlarged store network and strengthening balance sheet, FJB will be a strong proxy for the recovery in consumer spending. Maintain 'buy'.
BUY
Compiled by CONRAD TAN
Glossary:
Ebit - earnings before interest and tax
Ebitda - earnings before interest, tax, depreciation and amortisation
EPS - earnings per share
FY - fiscal/financial year
H1, H2 - first or second half
NAV - net asset value
9M - nine months
P/B - price/book value (ratio)
PE - price/earnings (ratio)
Q1, Q2, Q3 - first, second, or third quarter
q-o-q - quarter-on-quarter
RNAV - revised net asset value
ROE - return on equity
TP - target price
y-o-y - year-on-year
Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.
Brokers who wish to send in their reports can e-mail us at btnews@sph.com.sg
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