SINGAPORE (Apr 25): UOB KayHian and Maybank KimEng are maintaining their “buy” call on ST Engineering with target prices of $4.70 and $4.30 respectively given its recent contract wins, especially in the marine division.
On Wednesday, ST Engineering (STE) announced US subsidiary, VT Halter Marine (VTHM), had secured a US$746 million ($1 billion) contract to build a single Polar Security Cutter (PSV), previously known as heavy icebreaker by 2024.
VTHM has also secured an option to build two similar PSVs and with all options exercised, the total value of the contracts could amount to $2.6 billion.
In a Thursday report, UOB analyst K Ajith says the full exercise of the option is highly likely as press reports have quoted the department of Homeland Security as requiring a total of six icebreakers.
In a separate report by Maybank on the same day, analyst Neel Sinha says the win comes after a prolonged drought of contracts for STE’s marine division and likely signals a turnaround for the division.
Taking into the latest win by VT Halter Marine, YTD order win by the marine division amounts to $1 billion, says Sinha, which is higher than the $991 million of contracts won for the whole of 2018.
More importantly, the single largest contract by VTHM in over a decade should also improve the division’s 3-5 year growth outlook as the project is a “breakthrough” for STE in terms of US defence contracts, adds Sinha.
Year to date, STE has already secured 65% of 2018’s $4.8 billion total contract wins, says UOB’s Ajith. The aerospace sector received contracts worth about $1.3 billion, including a 10-year maintenance contract to service 160 aircraft for a new airline customer.
The electronics sector also won contracts worth $818 million which included smart rail contracts for Bangkok MRT, Wuxi Metro and Taiwan Railway Authority.
Maybank is lifting STE’s FY21F profit forecast by 2% and target price by 1.5% to $4.30 from $4.25 while UOB has a target of $4.70.
As at 2.37pm, shares in STE are down 3 cents at $3.87 or 16.2 times FY21F earnings by UOB.
