SINGAPORE (May 15): UOB Kay Hian has downgraded ST Engineering from “buy” to “hold” even as it raised its target price to $3.90 from $3.70 previously.

It recommends investors accumulate on dips, with a preference to buy closer to $3.60 for a 10% total return, inclusive of dividends.

This comes after the group last Friday announced 1Q17 earnings of $103 million – 6% down from the same quarter a year ago  due to lower wage credit income, higher provisions for debt, as well as higher taxes and minority interest.

(See also: ST Engineering posts 6% decline in 1Q earnings to $103 mil)

Nevertheless, the research house is in the view that ST Engineering’s long-term growth prospects remain intact as its management remains optimistic on solid long-term capabilities, given a slew of initiatives expected to bear fruit over the next few years.

“1Q17 earnings were affected by a multitude of factors, notwithstanding the substantial increase in allowances for bad debt. However, STE has substantially reduced its exposure to the offshore and marine (O&M) segment and highlighted several initiatives,” detail analysts K Ajith and Sophie Leong in a Monday report.

“STE also guided that the new contract for maintenance of SMRT’s trains will not require an increase in headcount and it already has the capabilities and technological know-how to provide the services. Over the long run, we believe STE is poised to benefit from its engineering capabilities and technological enhancements,” they add.

Ajith and Leong have trimmed their 2017 net profit estimate by 1% to factor in higher minority interest and higher taxes, although their 2018 earnings estimate remains unchanged.

As at 10.32am, shares of ST Engineering are trading 3 cents lower at $3.72.