ST Engineering - DBS Research 2016-04-08: The smart bet

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ST Engineering SINGAPORE TECH ENGINEERING LTD S63.SI 

ST Engineering - The smart bet 

• Visibility remains robust despite some slowdown in marine and land systems orders in 2015 
• Electronics division is plugged into smart city trend; expect more contracts in near term 
• Aerospace division has started to reap benefits of investments in new growth areas 
• Maintain BUY with higher TP of S$3.65 

Long-term growth initiatives pave the way forward in MRO. 

• The Aerospace division has seen robust traction in the cabin interiors and VIP completion businesses, while it continues to add capabilities in the more mature airframe MRO space. 
• It is also continuously enhancing its passenger-to-freighter conversion capabilities to serve a broader market. 
• The Electronics division is positioned to capitalise on the Smart Nation revolution in Singapore, with projects worth more than S$1bn likely to be tendered in the near future, according to our estimates. 
• Further, the launch of its TeLEOS-1 satellite last December is expected to herald in a new space-centred growth channel for the division, which management expects to be an important part of the company’s growth story going forward. 

Orderbook at decent levels. 

• The Group’s orderbook of S$11.7bn remains relatively stable, and covers close to two years of revenue, securing decent visibility going forward. 
• Order wins announced in 2015 were at par with 2014 levels, though Marine and Land Systems divisions have been slow. 

Good returns for investors should continue. 

• YTD in 2016, ST Engineering's (STE) share price has outperformed the broader STI Index by about 10%, which can be attributed to its strong defensive nature, healthy balance sheet and secure dividend promise in an environment of uncertainty and volatility in the equity market. 
• We believe STE still presents one of the more compelling investment cases compared to the other defensive, dividend yield names listed on the SGX, where long-term growth may not be as steady or as visible. 
• Maintain BUY, TP revised up to S$3.65 owing to higher preference for yield in the market.

Suvro SARKAR DBS Vickers | http://www.dbsvickers.com/ 2016-04-08

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 3.65 Up 3.40