Research firm Morningstar has shortlisted ST Engineering among its list of top picks among Asian industrial stocks for the current quarter, citing better earnings growth visibility this year.
The engineering conglomerate operates in multiple industry segments aimed at different markets, ranging from aircraft maintenance to deploying smart city systems to supplying ammunition and building armoured vehicles.
Over the past couple of years, its busy aircraft maintenance, repair and overhaul business has been affected by the pandemic, which curbed air travel.
This has been largely put behind, especially with China’s reopening the last big missing piece for the aviation industry.
“The Covid-19 impact aside, ST Engineering is driving growth through improved utilization of its capital alongside a plan to contain costs,” notes Morningstar, which has given the stock a 4-star rating out of a scale of 1 to 5, along with a fair value of $4.74.
Morningstar notes that ST Engineering has divested non-core activities to focus on areas that will provide synergies to its key aircraft maintenance and smart city activities. "In this regard, it is adding proprietary product makers to its stable."
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For example, ST Engineering recently sold its stake in a loss-making US-based shipyard.
Overall, Morningstar sees ST Engineering’s earnings per share to grow at a 5-year CAGR of 12.3%, significantly above 2.7% pre-pandemic 10-year average, which reflects not just the pandemic recovery but also contributions from recent acquisitions.
ST Engineering on March 2022 completed the US$2.7 billion acquisition of TransCore, a US-based traffic management system provider.
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“We expect STE to rebound along with the travel industry in the next 18 months, and STE's midterm outlook remains positive,” says Morningstar.
ST Engineering shares traded at $3.73 as at 9.44 am on Feb 7.