ST Engineering on bad hiring practices that compromise safety requirements

Some of you might have heard about news flow from the US that implicates ST Engineering on bad hiring practices that compromise safety requirements in the highly regulated MRO industry.

You can see the news article link here:
http://www.wfaa.com/sharedcontent/dws/wfaa/latestnews/stories/wfaa090630_mo_harris.23327cea.html

We have obtained written clarification that the allegations by STE that the news article are "inaccurate and groundless". They will be responding officially to the newswire soon. Their official response to us below:

"With regard to the recent news report, we clarify that the allegations of ST Aerospace's hiring of foreign workers to replace local employees and thereby keeping an unsafe working environment at our facilities at San Antonio and Mobile (Alabama) are inaccurate and groundless.

All workers at both facilities are carefully screened prior to hiring to ensure that they fully meet our stringent requirements and those of the regulatory authorities concerned.

Our companies operate in a highly regulated industry, and are subject to multiple audits by customers and regulatory agencies each year. We regularly interact with regulatory bodies to maintain our highest safety standards to continue to produce a safe product for the industry. It is practically not possible for such allegations of having a major flaw in our hiring practice through use of unqualified personnel to have gone undetected by these external parties, as well as by our internal audit system. Our quality system is tested and robust, and our excellent safety record bears testimony to this.

Both ST Aerospace's facilities ? San Antonio Aerospace (SAA) and ST Mobile Aerospace Engineering (MAE) ? have a well documented process of maintaining a safe and qualified workforce, and they work closely with various regulatory organizations to ensure that they are in full compliance with all applicable regulations. Contrary to the news articles, SAA and MAE do not compromise safety."

We are retaining our HOLD rating on STE with a fair value of S$2.46. Yields are about 5.8% for FY09F. We are not able to get much clarity on their recently announced Medium Term Note program and will update you when we get more details. They will be announcing their 2Q09 results on 4 Aug 09.

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