Jason Sum of DBS Group Research has maintained his " buy" call on ST Engineering given its clear earnings growth visibility.

 

Even with its recent run-up of more than 40% year to date, Sum believes that the stock' s valuation is still undemanding relative to global peers. As such, he has raised his target price from $6 to $7.50.

 

In his April 4 note, Sum says that ST Engineering has chalked up a record order book of $28.5 billion as of Dec 2024. 

 

Sum estimates that its earnings will grow at an " impressive" 15 - 20% CAGR between FY2024 and FY2026.

 

The growth is " driven by capacity expansion and a faster cadence of project deliveries across all business segments, along with strengthening operating margins as ST Engineering benefits from better pricing, increased operational leverage, and productivity gains, as well as lower interest costs from deleveraging."

 

Sum' s bullish note follows the company' s recent update of its growth targets to FY2029, including earnings CAGR in the low to mid-teens between FY2024 and FY2029.

 

In his view, the company' s defence and smart city targets could outperform what the company is guiding for, supported by structural shifts in global spending and years of execution groundwork. 

 

" In defence, rising procurement budgets in Europe and the Middle East, especially for equipment, are expanding ST Engineering&rsquo s export runway, with earlier investments in R& D, partnerships and marketing now set to deliver returns," says Sum.

 

Smart city contracts, meanwhile will see growth as governments prioritise mobility, sustainability and public safety initiatives. 

 

" We see continued execution on its growth story catalysing a re-rating," says Sum.

The JV company, Codex Solutions, will focus on developing and maintaining in-house software capabilities for the Home Team

 

[SINGAPORE] ST Engineering&rsquo s : S63 +1.52% subsidiary &ndash ST Engineering Mission Software & Services &ndash and the Home Team Science and Technology Agency (HTX) have incorporated a joint venture company Codex Solutions in Singapore, with an initial paid-up capital of S$10 million.

 

Codex Solutions will focus on developing and maintaining in-house software capabilities for the Home Team, said ST Engineering on Wednesday (Mar 26).

 

The defence and engineering group will contribute its expertise to develop tailored and integrated solutions, while HTX will bring its expertise in product innovation and management, as well as governance.

 

ST Engineering&rsquo s subsidiary will hold a 60 per cent stake in the joint venture (JV) company, with the remaining 40 per cent held by HTX.

 

Ravinder Singh, ST Engineering&rsquo s president for defence and public security noted that the group has been building capabilities to support homeland security agencies over many years.

 

He said: &ldquo The formation of this JV builds on this foundation, leveraging our experience to deliver significant capabilities to HTX and the Home Team.&rdquo

 

HTX&rsquo s chief executive Chan Tsan added that the formation of Codex Solutions is just one of the many ways that HTX is proactively creating new in-house capabilities.

 

He pointed out that ST Engineering has a strong record in this field and is also a key industry player in the homeland security space.

 

The formation of Codex Solutions is not expected to have any material impact on the consolidated net tangible assets per share and earnings per share of ST Engineering for the current financial year.

Brokers see gains from defence segment, company paints rosy prospects, fuelling its PE ratio to about 30, ahead of DBS, OCBC, UOB, SIA&rsquo s 10 to 11

 

[SINGAPORE] Analysts were bullish on ST Engineering : S63 +5.18%, hiking their target prices for the counter as they cited a positive outlook and strong growth prospects for the company.

 

This came after it announced its five-year targets at its investor&rsquo s day on Tuesday (Mar 18). The company aims to achieve revenue of S$17 billion and net profit improvement that outpaces its top-line increases by up to five percentage points annually over the next five years. 

 

In the year to date, ST Engineering is one of the biggest blue-chip gainers. Its share price has been on a tear through the year and has advanced as much as 41 per cent in terms of its closing price.

 

The counter has also been successively hitting year-to-date highs, such as when it crossed the S$5 mark on Feb 7 and the S$6 mark on Mar 4.

 

At 11.24 am on Thursday, shares of ST Engineering climbed to an intraday and all-time high of S$6.93, up by S$0.36 or 5.5 per cent from its closing price of S$6.57 on Wednesday, with 8.9 million shares changing hands.

 

As at 2.08 pm the share price eased back down to S$6.84, still up by S$0.27 or 4.1 per cent, with 12.6 million shares changing hands.

 

This brought its price-to-earnings (PE) ratio to around 31.1, above those of other blue-chip counters such as UOB, DBS, OCBC and SIA, which had PE ratios in the range of 7.8 to 11.5, Yahoo Finance data showed.

 

RHB on Thursday raised its target price to S$7.80 from its previous S$5.90 and maintained its &ldquo buy&rdquo call. CGS International on Tuesday increased its target price to S$7.40 from S$5.60 previously, while reiterating its &ldquo add&rdquo call. 

 

RHB analyst Shekhar Jaiswal said ST Engineering&rsquo s guidance targets imply &ldquo steady long-term growth&rdquo for the company, even though his estimates for its near-term earnings remained unchanged. 

 

This warrants raising its target price, he said. &ldquo We now value the stock based on 2026 estimates to better reflect its long-term growth potential.&rdquo  

 

He added that the new target price incorporates an unchanged 4 per cent environmental, social and governance premium over the fair value of S$7.50. 

 

Similarly, CGS International analysts Kenneth Tan and Lim Siew Khee said that ST Engineering&rsquo s &ldquo solid&rdquo medium-term revenue and profit guidance provide &ldquo confidence&rdquo in its ability to sustain double-digit earnings per share growth across FY2025 and FY2026. They added that the new target price is pegged to forecasts for FY2026.

 

Defence segment could spur growth

Both RHB and CGS International predicted that ST Engineering will benefit from growth in its defence segment. 

 

By 2029, it expects to reap more than S$7.5 billion from its defence and public security segment, as it sees an &ldquo addressable&rdquo international defence market worth US$11 billion. The company believes that rising geopolitical tensions &ndash underpinned by developments in Europe and the Middle East &ndash and increased defence spending by governments could bode well for business in that area.

 

Tan and Lim said: &ldquo We see a stronger and clearer earnings growth trajectory supported by a multi-year defence upcycle.&rdquo

 

They pointed out that ST Engineering&rsquo s management intends to address the large international defence market by ramping up collaborations with external partners and increasing localisation. 

 

&ldquo We believe a successful ramp-up in localised arrangements could be beneficial to margins given higher-value works undertaken and lower transport costs.&rdquo They added that the company sees a strong order pipeline across both munitions and vehicles. 

 

Jaiswal agreed that the company&rsquo s defence segment spending could support growth. 

 

&ldquo While our 2029 estimates are below ST Engineering&rsquo s targets, we believe the strong tailwinds for its commercial aerospace and defence and public security segments will support double-digit profit growth (forecasts) in 2024 to 2027,&rdquo he said. 

 

The defence segment could deliver a revenue surpassing S$7.5 billion, reflecting a 9 per cent compound annual growth rate (CAGR) &ldquo aided by ST Engineering strengthening its position in delivering solutions for Singapore&rsquo s defence and expanding its international defence business&rdquo , he said. 

 

Its commercial aerospace segment could hit S$6 billion in revenue or a 7 per cent CAGR, boosted by capacity expansion in airframe and engine maintenance, repair and overhaul services, and investments in next-generation capabilities for composite aerostructures, he added.