SINGAPORE (Feb 7): OCBC is upgrading ST Engineering to "buy" given its recent contract wins and exposure to high-growth areas like Smart Nation initiatives, aerospace engine maintenance contracts and improved outlook for the marine sector.
OCBC also believes ST Engineering’s valuations are attractive and supported by FY18 dividend yield of 4.7%.
"All considered, we are adjusting upwards its forecasts and rolling forward its valuations, our fair value increases from $3.61 to $4.00," says OCBC.
In 4Q17, unit ST Aerospace won new contracts worth $510 million in 4Q17, which included multi-year maintenance contracts to provide maintenance checks for Boeing aircraft as well as support for other engine platforms.
Notably, EFW, the JV between ST Aerospace and Airbus, also redelivered its first A330-300 passenger-to-freighter (PTF) aircraft to DHL in the quarter.
To recap, ST Aerospace in FY16 signed an agreement to convert four A330-300 passenger aircraft to freighter for DHL.
In a Wednesday report, analyst Eugene Chua says ST Engineering has previously highlighted there will be costs associated with the learning curve leading up to the conversion of the first aircraft for DHL.
"In our view, with the first aircraft delivered on time, such costs will likely decline progressively for the next few conversions and future conversions for other customers," says Chua.
In addition, ST Engineering also announced that its electronics arm won $742 million in new contracts in 4Q17 for rail electronics & intelligent transportation, satellite & broadband communications, as well as advanced electronics and ICT solutions.
Close to $500 million worth of new contracts in the quarter were advanced electronics and ICT contracts from local and overseas customers, and included projects relating to smart cities management in China, Europe, India and the US, as well as communications system for hospitals in Hong Kong.
Shares in ST Engineering are up 5 cents at $3.28 or 21.3 times FY18 forecast earnings.
