SINGAPORE (Aug 14): DBS Group Research has downgraded Singapore Technologies Engineering (ST Engineering) to “hold” with a lower target price of $3.80, from “buy” with a $4.12 target previously, on the lack of near term growth momentum.
“While we had previously expected the high orderbook, smart city leverage, as well as a turnaround at the Land Systems segment to help STE push past its previous valuation highs, we now believe it could be time for a breather as earnings momentum stalled in 2Q17,” says DBS lead analyst Suvro Sarkar in a Monday report.
Dogged by the weak marine sector, ST Engineering saw its 2Q17 earnings fall 12% lower to $111.5 million.
See: ST Engineering 12% lower 2Q17 earnings of $111.5 mil, impacted by the weak marine sector
“The Marine sector is arguably facing the strongest industry headwinds on the commercial front, with low offshore oil & gas spending and broad overcapacity in shipping,” Sarkar says.
With the absence of near term earnings growth catalysts, DBS has cut its net profit estimates for FY17F and FY18F by 12% and 8%, respectively.
Based on the revised earnings estimates, Sarkar says there is the possibility of slightly lower dividend in FY17, despite interim dividend unchanged from last year at 5 cents per share.
“We think earnings uplift now looks more like a medium term story and prefer to turn neutral until there is greater visibility on growth,” Sarkar adds.
As at 12.15pm, shares of ST Engineering are trading 3 cents lower at $3.67.
