SINGAPORE (Mar 13): ST Engineering will host an investor day meeting on Mar 22 where management is expected to give an update on its strategic direction and earnings outlook.
"We believe this could be a potential catalyst for the stock given low market expectations," says Credit Suisse analyst Gerald Wong in a Tuesday report.
In particular, ST Engineering is likely to highlight opportunities in defence and smart city solutions, says Wong. This includes cyber security, public security services, urban transportation and robotics.
With the acquisition of Aethon last July, ST Engineering plans to grow its robotics business by leveraging its track record in the healthcare segment in the US to expand to the hospitality, industrial and logistics segments, as well as to grow the Asian and European markets.
Credit Suisse also sees ST Engineering's management’s growing confidence in the defence export market. This follows the successful delivery of 16 Terrex 2 prototypes to the US Marine Corps for the ACV 1.1 programme, which is likely to be awarded in mid-2018.
In addition, it has signed a teaming agreement with SAIC to develop prototypes for the US army mobile protected firepower programme.
Following three straight years of earnings decline over 2013-16, ST Engineering saw a 6% growth in EPS in 2017. As a result, ROE improved to 23% in 2017 from 22% in 2016, but still below the 25-30% level achieved in 2004-14.
"We are expecting ROE to recover further to 25% in 2020E, in line with consensus," says Wong, adding any targets set above these levels should be a positive surprise to the market.
CIMB is maintaining its "outperform" with a $4.00 target price.
As at 2.20pm, shares in ST Engineering are up 4 cents at $3.47 or 19.3 times FY18 earnings.
