• Keep BUY and SGD4.10 Target Price, 5% upside, with 4% FY19F yield.
• ST Engineering, one of our country Top Picks, should see a revival of profit growth, aided by increased capacity and capabilities in Aerospace, delivery of smart city-related contracts in and outside Singapore, and defence-related contracts.
• Along with continuing order wins for its Aerospace and Electronics businesses – similar to what was announced in 1Q19 – the completion of the Newtec acquisition could be key re-rating catalysts.

Strong Order Wins in 1Q19

• Early this week, SINGAPORE TECH ENGINEERING LTD (ST Engineering, SGX:S63) announced SGD2.1bn worth of order wins for 1Q19, its highest ever quarterly win since 1Q10. Some SGD1.3bn of order wins came from Aerospace, while the Electronics received SGD818m worth of projects.
• Aerospace order wins included a 10-year service agreement to provide heavy maintenance checks for a major US airline’s entire fleet of A300 and B757 aircraft. The 160 aircraft covered under the agreement will be serviced at ST Engineering’s San Antonio and Pensacola facilities, starting in 2020. This order win will add to its already-strong outstanding orderbook, which offers two years of revenue visibility.

Newtec Acquisition Should Enhance ST Engineering’s Satcom Business

• In late March, the company announced plans to acquire a 100% stake in Newtec, a Belgian company involved in the satellite communications industry, for EUR250m (SGD383m). While subject to regulatory approvals, completion of the deal is anticipated in 2H19 and ST Engineering expects to fully fund the acquisition with cash and external borrowings.
• While we estimate the transaction to be minimally earnings-accretive during the forecasted period, the acquisition will enhance ST Engineering’s capabilities in offering a digital connectivity platform for Smart City solutions in the future.

Aspires to Build & Operate a Global Healthcare Technology (HealthTech) Business

• Early last year, during its 2017 results briefing, management highlighted its keen interest in exploring new business opportunities in health and medical technologies. At its recently-concluded AGM, management highlighted to investors its plan to build and operate a global HealthTech business.
• Some parts of ST Engineering’s current businesses have HealthTech offerings. However, it seems the company aims to be actively involved in the total HealthTech value chain globally.
• We believe ST Engineering could explore M&A opportunities in the HealthTech business, as it plans to build a global business within the next two years.

Source: RHB Invest Research - 25 Apr 2019