SINGAPORE (Nov 9): ST Engineering (STE) is looking to robotics and other tech innovations to drive future growth amid unexciting near-term prospects.
“Management is optimistic of the potential in autonomous mobile robotics (AMR), citing long-term growth potential,” says UOB Kay Hian analyst K Ajith in a Thursday report. “STE is optimistic on the numerous applications for its Aethon, TUG smart autonomous mobile robot, which has a payload of 635kg.”
The group in July acquired US robotics company Aethon Inc. for about $50 million.
Aethon’s autonomous mobile robot helps to automate intra-logistics in industrial, healthcare, hospitality and other commercial environments by delivering goods, materials, meals, medication and other supplies.
See: ST Engineering acquires US robotics company Aethon valued at $50 mil
“STE believes Aethon could make a material contribution to its revenue in the next 3-4 years,” says RHB Research analyst Shekhar Jaiswal in a report on Thursday.
With the global market for autonomous mobile robotics expected to be worth some $1 billion by 2022, Jaiswal forecasts that Aethon could contribute US$100 million ($136 million) in revenue to STE.
And this is a conservative estimate, based on the assumption of a 10% market share. Aethon currently holds a 30% share of the autonomous mobile robotics market.
Aside from robotics, STE has also identified cyber security, autonomous technology and data analytics as strategic capabilities that it will invest in for long-term value and growth.
See: ST Engineering establishes $200 mil VC unit and an engineering-based incubator
See also: ST Engineering corporate venture unit invests in cyber security business
“STE took pains to highlight that it has made significant investments, which would enable future growth,” says UOB’s Ajith. However, the gestation period for these investments extend beyond the immediate quarters, the analyst adds.
In the near term, though, ST Engineering looks much less exciting.
The group posted a 67% increase in 3Q17 earnings of $128.4 million, compared to $76.7 million a year ago. However, this was largely due to the absence of a $61.1 million one-off charge incurred in 3Q16 for its Specialty Vehicle business in China.
Group revenue for 3Q ended Sept grew 1% to $1.62 billion on the back of higher contributions from the Aerospace and Electronics sectors, which grew 8% and 6%, respectively.
See: ST Engineering's 3Q earnings up 67% to $128.4 mil on absence of one-off charge
“While near-term earnings visibility is poor, we believe that STE is taking the right steps to enable growth. We are also encouraged by the sequential improvement in its marine division’s profits, and believe that the worst is over,” says Ajith.
UOB is keeping its “buy” call on STE with an unchanged target price of $3.80.
“Rising demand for passenger-to-freighter (P2F) conversions and spending on Smart Nation initiatives should support the Aerospace and Electronics growth in near term,” says RHB’s Jaiswal.
RHB is maintaining its “buy” recommendation on STE with a lower target price of $4.04, from $4.07 previously, to reflect weakness in the Marine business.
As at 1.07pm, shares of ST Engineering are trading 3 cents lower at $3.38. According to UOB forecasts, this implies an estimated price-to-earnings ratio of 21.1 times and a dividend yield of 4.4% in FY17.
