SINGAPORE (Mar 12): Maybank Kim Eng is upgrading ST Engineering to "buy" given growth catalysts are falling in place after three lacklustre years.

Maybank says the aerospace landscape is improving, recent acquisitions hold growth promise and the rationalisation at land systems and marine divisions is largely completed.

In a Monday report, lead analyst Neel Sinha says aerospace MRO (maintenance, repair & overhaul) is seeing green shoots from the recovery in global trade, some capacity rationalisation and growth in the global aircraft fleet.

The analyst also sees steady demand for transport and satellite communications solutions for the electronics division, and new drivers from smart-city and ICT solutions, both enhanced by the SP Tel investment.

Meanwhile, land systems is looking more promising in the autonomous mobile robot market with its Aethon acquisition.

And while prospects for marine remain challenging in the near term, cost rationalisation has been largely completed and an oil price recovery may alleviate the situation sooner than expected.

ST Engineering's divisions used to work in separate silos but with management's focus on forging greater integration, the conglomerate can now offer tailored customer solutions using its deep pool of engineering and technological expertise in multiple sectors.

"The strategy to better integrate the divisions could result in revenue and cost-synergy surprises," says Sinha. Maybank has adjusted FY18/19/20 profit by 5%/7%/14% and raised its DCF-based target price by 31% to $4.15.

As at 1.07pm, shares in ST Engineering are up 3 cents at $3.41 or 18.8 times FY18 earnings.

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