ST Engineering - DBS Research 2015-11-02: Towards a smarter future

ST Engineering - DBS Research 2015-11-03: Towards a smarter future ST Engineering SINGAPORE TECH ENGINEERING LTD S63.SI 

ST Engineering - Towards a smarter future 

  • ST Electronics should be one of the key local beneficiaries of Singapore’s Smart Nation initiative. 
  • Working on pilot projects already. 
  • Significant contract wins in this space likely over FY16/17. 
  • Maintain BUY, TP raised to S$3.60 as we roll over to FY16. 

On track to secure orders. 

  • Singapore is poised to be among the global leaders in adoption of Internet of Things and big data as it pushes its Smart Nation program to resolve challenges in the utilities, transport and healthcare space through technology. 
  • Given the government’s proactive approach, we believe ST Engineering’s electronics division is well positioned to secure Smart Nation projects worth more than S$1bn in the near future. 
  • ST Electronics has already secured 7 out of 15 pilot projects in Jurong Lake district for the Smart Nation project, including 
    1. Smart Traffic Management System, 
    2. Location Information in Urban Environment, 
    3. Estate Energy Management System, 
    4. Smart Outdoor Lighting, 
    5. Smoke Detection, 
    6. Smart Walk and 
    7. Smart Phone as Sensor. 

Strong competence in Smart City building blocks. 

  • ST Electronics has long track record in providing both hardware as well as system integration solutions as part of its Smart City capability build up. It has deployed or piloted sensor networks and smart utilities in cities like Paris, California, Texas, Sao Paulo, Auckland, Eliat (Israel) and Singapore already. 
  • It has also implemented intelligent traffic solutions in various Chinese cities like Beijing, Chengdu and Wuhan. 
  • ST Electronics also offers solutions like Smart Waste Management, Smart Water Management, Security Management Systems, Smart Healthcare Systems among others. 

Stocks holds its allure. 

  • We believe the strength in the Electronics division will help to offset weakness in Marine division over the next 2 years and allow STE to report steady earnings and dividends. 
  • Maintain BUY on the counter, underpinned by healthy orderbook of S$12.4bn, strong balance sheet and dividend yield of 4.5%. 
  • Stronger earnings in 2H15 should provide catalysts in the near term. 
  • TP raised to S$3.60 as we roll over to FY16 valuation metrics. 

Ben Santoso DBS Vickers | http://www.dbsvickers.com/ 2015-11-02
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 3.60 Up 3.40