ST Engineering hits rock bottom on back of massive restructuring costs in Q3

Can a turnaround happen next quarter?

Huge Europe restructuring costs took a big bite out of ST Engineering’s profit in Q3. ST Engineering’s net profit in Q3 was 26% below consensus foreacasts.

According to CIMB, ST Engineering is paying a hefty sum for its efforts to scale down Europe operations. Unlike its counterpart SIA Enginering, ST Engineering’s earnings missed due to impairment and restructuring costs from the shutdown of its European landing gear operations.

“We think 3Q14 could be the bottom, and 4Q14 could be a non-event. However, FY15 will be a rebound year with issues in Aerospace being dealt with. Management is committed to keep its dividend payout of 80%, which still implies a dividend yield of 4.5%. Net cash was S$487m and order book was steady at S$13.2bn,” noted CIMB.

Here’s more from CIMB:

In 9M14, Europe only accounted for 2% of Aerospace revenue. The US and Asia contributed 23% and 74% of Aerospace revenue respectively.

There are three profitable operations that STE is keeping in Europe – EFD (freighter conversion), STA Solutions Copenhagen (sales & marketing) and STA Solutions Stockholm (Aero-structures). 

There could still be some restructuring costs in 4Q14 related to the rationalisation exercise in Europe, such as staff and resources re-allocation as well as severance packages.