Brokers’ take: CGS-CIMB lowers ST Engineering target, forecasts 15% drop in profit
Sharanya Pillai
CGS-CIMB has lowered its target price on ST Engineering to S$4.58 from S$4.70, on the back of higher operational expenses. The research house maintained its “add” call on the counter.
Analysts Lim Siew Khee and Kenneth Tan also forecast a 15 per cent drop in ST Engineering’s net profit for H1 ended June to S$250 million. They cited expenses from the acquisition of US-based transport tech company TransCore, and rising cost pressures as drags on earnings.
But they added: “We then expect sequential earnings recovery from H2 onwards as we believe the bulk of transaction expenses were booked in H1.”
In a note published Tuesday (Aug 2), the analysts project ST Engineering’s H1 revenue to rise 18 per cent to S$4.3 billion, driven by contributions from TransCore, as well as the urban solutions and satellite communications (USS) and commercial aerospace (CA) segments.
Lim and Tan see H1 revenue from the CA business growing 25 per cent, with global flight activity recovering and stronger maintenance, repair and overhaul volumes. The segment’s Ebit (earnings before interest and taxes) is forecasted at S$78 million, translating to a 5.5 per cent Ebit margin preserved by the group’s “strong operating leverage”.
Meanwhile, USS revenue is expected to jump 58 per cent in H1, thanks to TransCore contributions and smart city solutions gaining traction. From TransCore, they estimate revenue contributions to ST Engineering of S$225 million – or 27 per cent of H1 USS revenue.
ST Engineering’s defence segment could also boost order wins, Lim and Tan said. The company recently signed 3 agreements with Saudi Arabian Military Industries (SAMI), a subsidiary of the kingdom’s Public Investment Fund.
“We see potential for further upside to ST Engineering’s defence order wins given Saudi Arabia’s large defence spending and ambitious long-term goals set by SAMI,” the analysts said.
ST Engineering was trading at S$4.05 as at 12.50 pm, down 0.7 per cent or S$0.03.
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