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ST Engineering's share price weakness presents buying opportunity: RHB

Felicia Tan
Felicia Tan5/27/2021 12:42 PM GMT+08  • 2 min read
ST Engineering's share price weakness presents buying opportunity: RHB
As at 12.38pm, shares in ST Engineering are trading 3 cents higher or 0.8% up at $3.84.
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RHB Group Research analyst Shekhar Jaiswal has kept “buy” on Singapore Technologies Engineering (ST Engineering) with a target price of $4.50, representing an 18% upside on the counter’s share price of $3.80 at close on May 24.

See: ST Engineering says cost savings target is 'on track', $1.6 bil new contracts won during 1Q in quarterly update

The current weakness in ST Engineering’s share price is an opportunity for investors to accumulate more shares in the group, says Jaiswal, who remains positive on ST Engineering’s earnings outlook.

“This is based on its growing defence business, gradual return in demand for commercial aerospace maintenance, repair and overhaul (MRO) business, which relies more on narrow body aircraft and higher demand for passenger-to-freighter (P2F) conversions amidst international aviation demand’s slower return,” he writes in a report dated May 25.

“Strong revenue visibility amidst high order book and ability to sustain dividend payments are also a positive,” he adds.

ST Engineering’s recent plans to set up a 50:50 joint venture (JV) with Temasek Holdings for freighter aircraft leasing offers “excellent growth opportunities” amid the ongoing e-commerce boom, capacity constraints in air cargo and declining cost of aircraft feedstock, says Jaiswal.

See also: ST Engineering and Temasek enter into 50-50 JV for freighter aircraft leasing

ST Engineering’s new passenger-to-freighter (P2F) orders on May 19, where it signed a letter of intent (LOI) to lease up to five Airbus A321 P2F aircraft to Global Crossing Airlines (GlobalX), as well as its steady contract wins, is also another plus for the counter.

“While there has been a change in the segment reporting, ST Engineering reported $1.55 billion of order wins in 1QFY2021 versus $1.57 billion of order wins in 1QFY2020 and $1.34 billion of order wins in 4QFY2020,” writes Jaiswal.

“As at end 1QFY2021, ST Engineering’s order backlog stood at $15.7 billion, which implies a book-to-bill ratio of over two years. As at the start of 2021, $5.3 billion of the orderbook was expected to be delivered in 2021, an equivalent to 71% of our revenue estimate,” he adds.

As at 12.38pm, shares in ST Engineering are trading 3 cents higher or 0.8% up at $3.84.

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