What to blame for ST Engineering's lower earnings outlook

Analyst slashed forecast by 4.5%.

According to OSK, ST Engineering’s 3Q13 results came in below expectation with SGD131.4m PATAMI (-10.3 % y-o-y) on the back of SGD1,550m revenue (+0.5 % y-o-y). 

Impacted by the softening in the global economy, management has guided on a lower outlook. Thus, OSK lowers its FY13/14 earnings estimates by 4.5%/2.5%. 

Here's more:

Results impacted by exceptional items. STE’s SGD170.3m 3Q13 PBT (- 10% y-o-y) was due to several exceptional items: i) a SGD23.7m impairment for ST Marine’s ROPAX (roll-on/roll-off passenger) vessel that was partially offset by a SGD14.4m warranty provisions write-back, and ii) a lack of write-back allowance for inventory (vs net SGD10.1m in 3Q12) for its aerospace segment. Otherwise, it would have posted a 2.5% PBT increase.

Lower guidance. STE lowered its FY13 revenue and PBT guidance to comparable (+/-5%) from higher (>+5%), as quantitative easing (QE) tapering fears and the US Government partial shutdown impacted/pushed back contracts across all its segments.

Land systems particularly weak. STE’s ST Kinetics performed badly with 11%/9% y-o-y decline in revenue/PBT.

Its defence business was impacted by the aforementioned, while its commercial business was impacted by macro weaknesses that also saw peers Caterpillar (CAT US, NR) and Sany Heavy (600031 CH, NR) posting 44% and 54.3% falls in quarterly profits respectively.

We believe this is temporary, as China’s ongoing 18th Congress meeting should announce policies to stimulate spending.