UOB Kay Hian (UOBKH) analyst Roy Chen has maintained “buy” on Singapore Technologies Engineering S63 (ST Engineering) with a higher target price of $4.95 from $4.50 previously on the back of its record-high order book that offers good visibility.
Despite ST Engineering’s recent share price strength, Chen recommends investors to stay invested for the company’s steady growth outlook, which is driven by upbeat performances across its three business segments.
Chen notes that in late 2021, ST Engineering set a 2026 revenue target of $11 billion. He believes the company can meet and even exceed this target in 2024 at $11.25 billion.
“Development of the digital business is also ahead of schedule, with digital business revenue on track to beat the 2026 target of $500 million this year. Smart city revenue has enough time to meet the $3.5 billion target by 2026.”
In his outlook, Chen forecast ST Engineering’s revenue to grow by a three-year CAGR of 6.4% in 2024-2026, underpinned by its strong order book.
Among the three segments, commercial aerospace is expected to see the strongest growth at 19%, 5% and 5% y-o-y in 2024, 2025 and 2026 respectively, backed by maintenance, repair, and operations (MRO) capacity expansion and beating the global MRO industry’s average growth rate.
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Revenue of Iits defence and public security segment is expected to grow by 8%, 3% and 3% y-o-y in 2024, 2025 and 2026 respectively. Meanwhile, its urban solutions and satcom revenue is expected to grow by 3%, 3%, 3% y-o-y in 2024, 2025 and 2026 respectively, though the analyst cautions that the actual revenue recognition would be affected by the timing of project deliveries.
UOBKH forecasts ST Engineering’s core net profit to grow by a three-year CAGR of 10.8% in 2024-2026, faster than revenue CAGR. This will be driven by improving blended operating margins thanks to the larger revenue scale and favourable operating leverage.
ST Engineering currently trades at 19.5 times its FY2025 P/E, which is 0.7 standard deviation (s.d.) below its historical average one-year forward P/E of 20.7 times. UOBKH’s target implies a 22 times FY2025 P/E, which is 0.7 s.d. above the historical mean. This reflects ST Engineering’s upbeat growth outlook, Chen notes.
As at 11.53am, shares in ST Engineering are trading 1 cent higher or 0.22% up at $4.38.
