RHB raised its target price on Singapore Technologies Engineering (ST Engineering) to S$5.32 from S$5 after rolling forward its valuation base year to fiscal year 2025. It has a “buy” recommendation on the counter.
The rating comes as the counter’s share price has outperformed the Straits Times Index and is likely to continue, said analyst Shekhar Jaiswal on Wednesday (Sep 18).
He believes that ST Engineering is “well-positioned” to deliver “steady dividends” and grow its profit at a compound annual growth rate of 15 per cent from 2023 to 2026.
Growth in its bottom line will be buoyed by strong demand for aviation maintenance, repair and operations (MRO) services, as well as a potential recovery in the company’s urban solutions and satellite communications (USS) segment, said Jaiswal.
“Because of strike action, Boeing’s operations have been impacted, and we believe this could make the shortage of jetliners worse worldwide and force airlines to keep using older aircraft for longer,” he added.
“This would, in general, mean more work for both airframe and engine MRO service providers,” noted Jaiswal.
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Despite growth in the USS segment for H1 FY2024 missing the research house’s expectations, Jaiswal continues to like the stock. This comes as he believes ST Engineering’s focus on improving processes and optimising costs should lift its earnings before interest and tax.
Additionally, the analyst also noted that the company’s earnings could be boosted by the impending interest rate cuts.
“Amidst our expectations of two rate cuts in H2 2024, and additional rate cuts in 2025, we see a possibility of lower interest costs next year, which could further boost earnings,” he said.
This is because some 39 per cent of ST Engineering’s debt is exposed to floating interest rates.
Shares of ST Engineering were trading 0.2 per cent or S$0.01 higher at S$4.65 as at 11.19 am on Wednesday.
