who got researcher report for ST Eng
ST Engineering: Added S$1.2b of new orders in 4Q15
By Carey Wong
Mon, 1 Feb 2016, 15:41:49 SGT
STE is currently still trading about 14% lower after cutting its FY15 PBT guidance on 6 Nov; but we believe that a lot of the negatives may have been captured in the price. For one, valuations are a lot cheaper, with STE trading at 16x PER, or 1.5 SD below the 5-year mean. Secondly, it has just secured around S$1.2b of new orders in 4Q15 to replenish its S$12.2b order book (as of end Sep). Thirdly, its forecast yield of 4.9% this year remains fairly attractive, and interest rates may not be rising as much as feared. Last but not least, we noticed that the company has resumed buying back shares and has bought another 3m more shares at ~S$2.90 each since Nov 2016. Maintain BUY with an unchanged S$3.22 fair value (19x FY16F EPS).
Still weighed by soft 3Q15 results
Singapore Technologies Engineering’s (STE) weaker-than-expected 3Q15 results and the subsequent cut in FY15 PBT guidance continues to weigh on sentiment it seems; the stock continues to trade around 14% lower after falling from S$3.30 on 6 Nov. Understandably, the muted outlook for the Marine sector and a potential slowdown in the Aerospace sector due to sluggish global economic environment are causes for concern; but we believe that a lot of the negatives may have already been captured in the share price.
Valuations are very attractive
For one, the share price has corrected some 23% from the 2015 peak of around S$3.70. This has also resulted in a significant fall in its valuations. Based on Bloomberg’s consensus EPS, STE is now trading around 16x PER; it is also nearly 1.5 standard deviations (SD) below the 5-year mean. The last time STE was trading at 2 SD below the 5-year mean was in 2011.
Orders are still coming in
Secondly, all the doom and gloom about the company’s prospects in the Marine and Aerospace sectors may be a bit overdone. After all, STE is still sitting on a sizable order book of S$12.2b (as of end Sep 2015); while it expects to deliver to less than S$1.4b in 4Q15, it has also secured around S$1.2b of new orders in that quarter. These include S$344m of Marine orders, S$435m of Electronics orders and S$415m of Aerospace orders.
Rising interest rate concerns may be overdone
And STE, being a “yield” play, also felt the blow from rising interest rate concerns; but expectation of further hikes in US interest rates has mellowed somewhat. We note that the 10-year SG bond yield is currently lower post the Dec Fed hike than before the hike. Assuming STE pays out S$0.14/share dividend this year, the forecast yield is fairly attractive at 4.9%.
Maintain BUY with S$3.22 fair value
Last but not least, we noticed that the company has resumed buying back shares – it has bought back nearly 3m shares at an average of S$2.90 between 20 Nov 2015 and 11 Jan 2016; this brings the total shares bought back to 11.7m. Maintain BUY with an unchanged S$3.22 fair value (19x FY16F EPS).