SINGAPORE (April 27): OCBC Investment Research is downgrading ST Engineering (STE)  to “hold” as its valuations are not compelling enough.

In a Wednesday report, lead analyst Carey Wong says while STE’s stock price has corrected somewhat, she believes the company’s PER is still trading above its three-year mean of 19x consensus EPS.

“Hence we opt to downgrade our Buy call to Hold. We would be looking to re-engage closer to $3.00,” says Wong.

Although STE recently announced that it has won about $505 million worth of contracts in 1Q16, the contracts are not expected to have any material impact on FY16’s NTA or EPS.

The contract wins are however an improvement over $435 million worth of electronics orders STE had won in 4Q15, adds Wong.

Cumulatively, STE has secured about $948 million worth of new contracts in 1Q16, which compares favourably against the $1.2 billion total orders it had won in 4Q15.

As of end 2015, STE has an order book of around $11.7 billion, which it expects to deliver about $3.8 billion this year, covering about 60% of OCBC’s full-year estimate.

STE is due to release its 1Q16 results on May 13. It had previously guided for higher group revenue in FY16, but comparable PBT, suggesting that there may be risk of a margin squeeze.

As at 11.29am, shares of STE are trading 1 cent lower at $3.25.