SINGAPORE (Nov 15): OCBC Investment Research and RHB Research are maintaining ST Engineering at “buy” with target prices of $3.95 and $3.97 respectively.

ST Engineering reported a 1% y-o-y rise in revenue to $1.6 billion and a 5.3% increase in net profit to $134.6 million in 3Q18, bringing 9M18 net profit to $369.8 million.

Both revenue and net profit for aerospace grew 13% y-o-y to $689 million and $55.4 million respectively in 3Q18, led by broad-based growth across business units.

See: ST Engineering posts 5% increase in 3Q earnings to $135 mil

Revenue for electronics was 2% higher at $491 million, while net profit rose 30% to $55.5 million largely due to higher revenue and lower operating expenses.

Despite a 10% drop in revenue to $297 million, net profit for land systems came in 45% y-o-y higher at $17.6 million due to favourable sales mix.

Marine posted a 16% drop in revenue to $137 million and a 35% fall in net profit to $12.8 million with challenging market condition.

Analyst Low Pei Han says ST Engineering’s results were slightly above DBS’s expectations with 9M17 net profit accounting for 65% of the full year figure.

The group ended 9M18 with an order book of $13.3 billion which provides revenue visibility for two years. Another $1.6 billion is expected to be delivered in the remaining months of 2018.

Looking ahead, Low says ST Engineering continues to be well-placed to deliver long-term sustainable growth.

RHB says ST Engineering’s 3Q18 segment recurring profit of $137 million was in line with its estimates.

Analyst Shekhar Jaiswal says ST Engineering’s aerospace’s airframe MRO capacity in Pensacola in the US should be operational by 2022 and will have four hangars to increase its MRO capacity by 2.1 million man-hours.

In addition, the group remains confident of completing the acquisition of Middle River Aircraft Systems (MRAS) by 1Q19.

Jaiswal says the MRAS acquisition, which is yet to be included in his estimates, could also lift the group’s 2019F-2020F earnings by 7-8%.

“ST Engineering could continue to outperform, amid a revival in earnings growth, continuing order wins and a likely completion of the MRAS acquisition,” concludes Jaiswal.

At $3.58, ST Engineering is trading at 17.9 times FY19F earnings, which is below its five-year forward P/E mean of 19 times.