Singapore Stock Market News

ST Engineering - Defensive and oversold

StockFanatic
Publish date: Thu, 27 Aug 2015, 10:48 PM
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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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