ST Engineering shares rise amid geopolitical tensions, turbulent stock market

MAINBOARD-LISTED defence and engineering group Singapore Technologies Engineering (ST Engineering) S63 has gained about 3.4 per cent in its share price this week, with analysts pointing to geopolitical tensions, the stock's safe-haven nature and the group's earnings prospects as factors propelling the ascent.

DBS equity research analyst Jason Sum said geopolitical tensions in Europe have sparked safety concerns among many nations and this will likely translate into a notable increase in defence spending.

"For example, Germany has announced that it plans to raise defence spending considerably in response to Russia's aggression - the country will inject 100 billion euros (S$150 billion) into a special fund to modernise its army. The French president also recently pledged to increase France's defence spending. Additionally, smaller countries may look to ramp up defence spending as well. These developments do bode well for ST Engineering's defence business," Sum elaborated.

CGS-CIMB's head of Singapore research Lim Siew Khee has observed that ST Engineering's American peer Lockheed Martin's stock price has also risen by nearly 10 per cent in the past 5 days.

She added that a diversified group with an international geographical footprint such as ST Engineering would tend to do well in the present choppy market. The recent robust earnings ST Engineering reported have probably given its share price a boost as well.

ST Engineering posted 9.3 per cent higher net profit at S$570.5 million for FY2021 as revenue for the year climbed 7.5 per cent to S$7.69 billion versus a year ago. Order book stood at S$19.3 billion as at end-2021, with S$6.6 billion to be delivered in 2022.

Indeed, RHB Bank Singapore's head of equity research Shekhar Jaiswal believes that investors may have started to appreciate ST Engineering's strengths as he noted it offers a profit compound annual growth rate of about 8 per cent. "Its record high order book that offers close to 2.5 years of revenue visibility should give investors the confidence of a sustained rise in earnings."

He also said that ST Engineering might have been the only blue chip company listed on the Singapore Exchange that did not cut dividends during the pandemic years. And ST Engineering will be increasing its total dividend payout to S$0.16 in 2022 from S$0.15 despite leveraging up to make earnings-accretive acquisitions.

"Add to all of this, is the fact that (about) 30 per cent of ST Engineering's revenue is derived from defence and related businesses," Jaiswal said.