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Old 26-08-2015, 12:25 PM   #200
Order 66'd
Join Date: Jul 2015
Posts: 5,250
● We believe STE's 18% share price decline in the past month is overdone and ignores its resilient military business which represents one-third of sales as well as strong orderbook of S$12.4 bn that should provide significant earnings visibility.

● While we were previously concerned about its China, Brazil and commercial aerospace exposure, we believe this have now been priced in as remaining goodwill in Brazil is S$3 mn, and consensus earnings estimates have been brought down and do not seem to incorporate a turnaround in Aerospace.

● STE has a strong balance sheet, with a net cash position of

S$460 mn as at June 2015. However, we expect potential headwinds for Marine with lower oil prices driving a decline in orders, and for Land Systems with further writedowns in China.

● STE is currently trading at a current P/B of 3.9x, below its 08-09 low of 4.3x. Its 2016E P/E of 15.5x is close to one standard deviation below its historical average. We expect its share price to be supported by its attractive dividend yield of 5.4%. Upgrade to NEUTRAL.
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