ST Engineering - DBS Research 2015-12-15: Invest for the long term

ST Engineering - DBS Research 2015-12-15: Invest for the long term ST Engineering SINGAPORE TECH ENGINEERING LTD S63.SI 

ST Engineering - Invest for the long term 

The Electronics division is positioned to capitalise on the Smart Nation revolution in Singapore,

  • ... with projects worth more than S$1bn in the near future, according to our estimates. The division has a long track record in providing both hardware and system integration solutions as part of its Smart City capability build up, which breeds optimism. 
  • Additionally, recent focus on space-related technology and robotics hold promise as longer-term growth drivers for the company. 

Targeted investments in Aerospace provide potential upside in the medium-term. 

  • The aerospace business’s investments into cabin interiors, VIP completions and configurations business in the US, as well as new partnerships with OEMs across the value chain, create new avenues for growth amidst a broadly stable industry environment. 

Orderbook remains healthy. 

  • The group’s orderbook of S$12.2bn remains relatively stable and covers almost two years of revenue, securing decent visibility going forward, despite a slowdown in Marine and Land division orders YTD in 2015. 
  • We believe the strength in the Electronics division will support STE over the next two years and allow the company to report steady earnings and dividends in the near term. 


  • We maintain our BUY call with TP of S$3.60, based on a blended valuation framework (blend of price-earnings, dividend yield and discounted cash flows) to factor both earnings growth and cash-generative nature of the business. 

Key Risks to Our View.: 

  • The structural changes facing the aircraft MRO industry could hit harder than expected, as newer airframe and engines reduce maintenance spend and lengthen the cycle for checks and OEMs take a larger share of the aftermarket services. 
  • Also, continued lack of action on the M&A front could lead to inefficient use of balance sheet and lower ROEs in the future.

Suvro SARKAR DBS Vickers | http://www.dbsvickers.com/ 2015-12-15
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 3.60 Same 3.60