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ST Engineering's current share price weakness an opportunity to accumulate: RHB

Felicia Tan
Felicia Tan9/10/2021 12:21 PM GMT+08  • 2 min read
ST Engineering's current share price weakness an opportunity to accumulate: RHB
Despite a weak global business environment, ST Engineering has secured new contracts worth a total of $3.4 billion in 1HFY2021.
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RHB Group Research analyst Shekhar Jaiswal is maintaining his “buy” call on Singapore Technologies Engineering (ST Engineering), as the group announced its contract win on Sept 2.

The contract, worth $180 million, will see the consortium by ST Engineering and Siemens Mobility renewing and modernising the communications system for Singapore’s MRT and LRT lines.

On this, Jaiswal has kept his target price unchanged at $4.50, representing a 19% upside to the group’s last-closed share price of $3.77 as at Sept 9.

In a Sept 10 report, Jaiswal deems the group’s current share price weakness as an opportunity to accumulate more shares into the counter.

See also: ST Engineering restructures to capture new growth; Sri Trang Agro and Straits Trading take one win each

This comes as he remains upbeat on ST Engineering’s earnings recovery over the next 12 months as rapid immunisation around the world will bring more businesses back to normal.

The recovery will be aided by continuing improvements in ST Engineering’s commercial aerospace business, which will be supported by higher maintenance, repair and operations (MRO) work.

A ramp up in passenger-to-freighter (P2F) conversions will also contribute to the group’s commercial aerospace business.

Furthermore, with its latest contract win, ST Engineering has managed to sustain a strong order win momentum.

“An ongoing cost rationalisation exercise should ensure [that] ST Engineering’s defensive business emerges stronger from the pandemic,” adds Jaiswal.

Despite a weak global business environment, ST Engineering has secured new contracts worth a total of $3.4 billion in the 1HFY2021.

For more stories about where the money flows, click here for our Capital section

It reported its highest order backlog of $16.8 billion, which implies a book-to-bill ratio of 2.3 years, notes the analyst.

“For 2HFY2021, ST Engineering expects to realise revenues of $3.6 billion from its outstanding orderbook which is 90% of our 2HFY2021 revenue estimate,” he adds.

“With roughly one-third of its revenue derived from defence and its revenue spread across multiple business segments and geographies, its business outlook remains defensive.”

As at 12.15pm, shares in ST Engineering are trading flat at $3.77, with an FY2021 P/B of 5.0 times and a dividend yield of 4.0%.

Photo: Albert Chua/The Edge Singapore

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