SINGAPORE (Mar 17): Shares in ST Engineering might have fallen nearly 24% from its recent peak of $4.42 in late February, but RHB Group Research continues to see the counter as a strong long-term defensive pick.

For one, analyst Shekhar Jaiswal notes that the stock has outperformed the benchmark Straits Times Index by 3.6% so far this year.

Even then, Jaiswal believes that the market seems to be pricing in more than the research house’s worst case scenario.

Based on our estimates and implied valuation, we assess that at the current share price, market seems to be discounting more than 15% earnings decline for ST Engineering in 2020,” Jaiswal says.

Even in its worst case scenario, RHB estimates that ST Engineering could see only as much as an 8% decline in earnings in 2020 – nearly half of what the market is pricing in.

“It is worth noting that since 2001, the company has never reported double-digit percentage net profit decline despite facing business headwinds during the SARS outbreak as well as global financial crisis,” Jaiswal adds.

The research house is maintaining its “buy” recommendation on ST Engineering with an unchanged target price of $4.90.

The way Jaiswal sees it, ST Engineering has its long-term growth drivers intact, despite the near-term economic uncertainties.

And his opinion is backed up by the group’s record high orderbook of $15.3 billion, which offers over two years of revenue visibility.

“Business and geographic diversity should ensure STE delivers revenue growth during 2019-2022 despite near-term economic uncertainties,” he adds.

Meanwhile, the analyst points out that earnings contribution from its recently completed acquisitions should continue to drive earnings growth.

“Its record-high orderbook, earnings contribution from recently completed acquisitions and investments to expand its capabilities in the Aerospace and Electronics segments should deliver long-term earnings growth,” Jaiswal says.

As at 4.45pm, shares in ST Engineering are trading flat at $3.36.

According to RHB valuations, this implies an estimated price-to-earnings (P/E) of 16.2 times, a price-to-book of 4.4 times, and a dividend yield of 4.4% for FY2020F.