STE recorded a FY08 net profit of S$473.6m from FY07’s S$503.5m, which included an impairment charge for investments of S$25.9m. Stripping this out, net profit was in line with our forecasts, and flat YoY. STE has also proposed a final dividend of 12.8cts per share, and coupled with the interim dividend of 3ct per share, STE has continued its policy of paying out 100% of reported earnings (including its impairment charge) as dividends, with a dividend yield at 7.7%. Return on equity was maintained at an impressive 30%.

All divisions performed according to guidance, with turnover growth up 6%, and all divisions recording higher turnover with the exception of Marine. EBIT, however, did decrease by 8% in challenging conditions, particular in the Aerospace division, where earnings were hampered by ramp-up costs for its Passenger to Freight conversion program.

The impairment charge referred to 3 quoted strategic investments, primarily in the Electronics division. These now have a carrying value of just around S$10m, and we do not expect any further charges. STE’s cash balance of S$1.05bn is held in low-risk interest bearing deposits, either with as bank deposits or loans to related companies with guaranteed returns.

For FY09 guidance, STE expects a higher turnover and comparable PBT as FY08. Specifically, Aerospace is expected to be flat, while Electronics should record higher PBT. Land Systems and Marine are also expected to outperform. STE’s orderbook stands at S$10.6bn, of which it expects to deliver S$3.6bn for FY09, or about 66% of our turnover projection.

We are trimming our FY09 forecast by 5% to be closer to STE’s guidance, and to factor in possible weakness – FY09 net profit still stands at a creditable S$515m. STE continues to be the star earnings performer in the Singapore market, despite adverse economic conditions. STE does not expect to cut its practice of paying out 100% of its earnings as dividends. This yields a dividend payout of around 8.3% for FY09. We are buyers of the stock to a 5% payout of FY09 projected dividends, or S$3.60.