Brokers’ take: UOBKH reinitiates ‘buy’ on ST Engineering with S$4.60 target price

UOB Kay Hian (UOBKH) has reinitiated coverage on ST Engineering (STE) : S63 0% with a “buy” call and a target price of S$4.60 on the belief that STE’s defence and public security portfolio is set to grow along with Singapore’s defence spending. 

The research house also sees STE as a beneficiary of the growing demand of international customers amid a volatile global security climate. 

The target price implies a valuation of 23.5 times the forecast FY2023 price-to-earnings ratio, above its historical average of 21.3 times.

In a Monday (Jun 6) report, analyst Roy Chen said he believes STE’s commercial aerospace portfolio is likely to recover fully by end-FY2023. Chen also expects revenue of STE’s commercial aerospace segment to recover to pre-pandemic levels over the same period of time. 

He attributes this to various factors, including STE’s slots for several freighter conversion programmes being fully booked till 2024/2025; the high utilisation of STE’s existing airframe MRO (maintenance, repair and operations) capacity; and Airbus ramping up aircraft production.

Chen noted that STE’s medium-term growth outlook is underpinned by a record order book of S$21.3 billion, which is contributed by all 3 of its business segments and provides good revenue visibility.

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While the analyst “conservatively” forecasts a flat core net profit in 2022, he expects net profit to grow 16.7 per cent in 2023 and 6.1 per cent in 2024, driven by organic business growth and higher contract deliveries. 

“With a comprehensive suite of solutions addressing the connectivity, mobility, security, infrastructure and environmental needs of cities, STE is proactively pursuing growth in the global smart city market and is well poised to ride the rising demand,” he added. 

STE’s shares were trading flat at S$4.13 as at 2.06 pm on Monday.