ST Engineering off to a fresh start after JHK sale

Excluding $61m charge, net profit would have been 3% higher.

With the divestment of JHK, ST Engineering (STE) can now commence operations on a clean slate and can expect lower provisions in the coming quarters, said UOBKayHian.

3Q16 headline net profit dropped 42% as ST Kinetics exits China. The research house estimates that excluding a S$61m charge on cessation of Chinese land systems unit JHK, STE's 3Q16 net profit would have risen 3% yoy.

Moving forward, UOBKayHian believes that STE appears to have fully “cleaned house” and can redeploy capital more effectively.

"Investments in data analytics, satellite imagery, cyber security and PTF conversion programmes are expected to augment earnings," it said.

It added that ST Aerospace’s hangar at Shanghai will also enable it to partake of China’s substantial MRO growth potential.

Furthermore, it noted that STE’s diverse business units and its exposure to defense and civil works provide a certain degree of hedging against an uncertain business environment.

"We also believe STE is well positioned for modest long-term growth," it said.