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RHB reiterates ST Engineering recommendation despite Covid downside risks

Ng Qi Siang
Ng Qi Siang7/30/2020 02:39 PM GMT+08  • 3 min read
RHB reiterates ST Engineering recommendation despite Covid downside risks
Strong growth in 2021 has yet to be priced in and dividend yields are likely to remain consistent despite an earnings downgrade.
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Despite a likely slower profit recovery arising from the Covid-19 pandemic, RHB analyst Shekhar Jaiswal remains steadfastly behind ST Engineering. He believes that the counter will record strong growth in 2021 on the back of normalised order deliveries across all segments. He has therefore once again maintained his “buy” call on the counter and $3.90 target price, accompanied by an 18% upside.

“Given its record-high orderbook that offers revenue visibility beyond 2020, a well-diversified business model that will mitigate near-term earnings volatility, sustainable dividend payout and below average P/E valuation, we believe ST Engineering could continue to outperform the STI in 2020,” says Jaiswal. RHB has consequently named the stock one of its “diamonds in the rough” for Southeast Asia, with global technology, defence and engineering group being the only Singapore stock on the list.

Doubts about the counter are understandable due to a potential earning downgrade for 2020, with ST Engineering already experiencing a 23% downgrade in earning estimates for the year. Concerned investors are still seeking management guidance on the firm’s 2H2020 outlook at its upcoming earnings release. But in spite of these uncertainties, a bullish Jaiswal places his faith in ST Engineering’s well-diversified portfolio and resilient defence earnings, with its high order backlog worth $16.3 billion likely to provide revenue visibility going forward.

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