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ST Engineering poised to ride on strong orderbook, analysts say

Stanislaus Jude Chan
Stanislaus Jude Chan • 3 min read
ST Engineering poised to ride on strong orderbook, analysts say
SINGAPORE (May 17): Analysts believe ST Engineering (STE) is poised to power ahead with its growth story this year, on the back of a record high orderbook that is likely to drive valuations.
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SINGAPORE (May 17): Analysts believe ST Engineering (STE) is poised to power ahead with its growth story this year, on the back of a record high orderbook that is likely to drive valuations.

And the optimism is unanimous: Analysts from all 15 brokerages covering the counter agree that STE is a “buy”.

“With a record $14.1 billion orderbook at the end of 1Q19, STE’s earnings growth potential looks exciting once again after a few tepid years,” says Suvro Sarkar, an analyst at DBS Group Research.

“Overall, we believe STE is at the cusp of a ‘next leg up’ in its growth story while trading at reasonable valuations,” he adds.

DBS is keeping it “buy” call on STE and raising its target price to $4.50, from $4.15 previously.

The technology, defence and engineering group on Wednesday reported 1Q19 earnings of $131.1 million, an 11% improvement compared to a year ago, as revenue rose 5% to $1.73 billion.


See: ST Engineering reports 11% higher 1Q earnings of $117.7 mil; order book hits record $14.1 bil

“1Q19 net profit growth was better than expected as the marine division recovered and losses from US subsidiary declined,” says UOB Kay Hian analyst K Ajith. “1Q19’s earnings would have risen by a greater quantum were it not for the adoption of the new accounting standard.”

“We expect stronger organic revenue growth for the rest of the year,” Ajith adds. “We are not too concerned about the slight pullback post results and recommend that investors stay invested.”

UOB is maintaining its “buy” call on STE with an unchanged target price of $4.70.

The way CGS-CIMB Research analyst Lim Siew Khee sees it, STE’s share price has gradually performed in the past three months thanks to the sizeable order wins announced year to date.

“We think there is still room for upside in the next 12 months as STE carefully executes contracts won in the past two years,” Lim says.

“STE is a quality name for shelter in an uncertain environment with its earnings predictability and decent close to 4% yield,” she adds.

CGS-CIMB is keeping its “add” recommendation on STE and raising its target price to $4.43, from $4.08 previously.

In addition, the analysts are optimistic that STE’s lacklustre growth over the past five years could be broken by acquisition-led growth.

“We estimate that the acquisition of MRAS, which was completed on April 18, 2019, will be a key driver for STE’s earnings growth in FY19 and FY20,” says DBS’s Sarkar.

In addition, STE’s recent acquisition of satellite communications equipment firm Newtec is anticipated to be completed in 2H19, and expected to be incremental to earnings from FY20/21.

As at 3.42pm, shares in STE are trading 2% lower, or down 8 cents, at $3.92.

According to DBS valuations, STE is trading at a price-to-earnings (PE) ratio of 21.3 times and a dividend yield of 4.1% for FY19F.

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