Following some margin pressure in 1Q, all divisions showed an improvement in margins from a more favourable sales mix with the exception of Land Systems. PBT margins for the group improved to 10% versus 8% in 1Q09. Most significantly, Aerospace EBIT margins rebounded to 12% from 9%, particularly as its 757 PTF programme exits the gestation phase.
STE maintained its orderbook at S$10.74bn from S$10.6bn at end-FY08, indicating robustness in demand. STE will deliver about S$2.06bn of this in the next 2 quarters. This puts it on track to deliver our full year turnover estimate of S$5.4bn, with a strong likelihood of exceeding this. Earnings also have the potential to outperform if the group is able to sustain the margins that were achieved in 2Q09.
Management has maintained guidance for the full year, and expects FY09 to show comparable turnover and PBT to FY08. This implies a higher turnover and PBT in the second half versus the first half. Our forecasts are in line with this projection, and we are leaving them intact. While net profit forecast at S$436.1m indicates a YoY decline of 8%, FY08 included a tax write-back of around S$50m. We expect a recovery in earnings for FY10 by 14%, as global economies are showing signs of recovering.
STE still expects to pay out 100% of earnings as dividends. As our forecasts remains unchanged, and we also maintain our FY09 projected dividends at 14.5 cts per share. FY09 dividend yield is at 5.5%. We are maintaining our recommendation at Hold, in view of the limited upside to our target price of S$2.70.
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