[SINGAPORE] Analysts were bullish on ST Engineering, hiking their target prices for the counter as they cited a positive outlook and strong growth prospects for the company.
This came after it announced its five-year targets at its investor day on Tuesday (Mar 18). The company aims to achieve revenue of S$17 billion and net profit improvement that outpaces its top-line increases by up to five percentage points based on a five-year compound annual growth rate.
In the year to date, ST Engineering is one of the biggest blue-chip gainers. Its share price has been on a tear through the year and has advanced as much as 41 per cent in terms of its closing price.
The counter has also been successively hitting year-to-date highs, such as when it crossed the S$5 mark on Feb 7 and the S$6 mark on Mar 4.
At 11.24 am on Thursday, shares of ST Engineering climbed to an intraday and all-time high of S$6.93, up by S$0.36 or 5.5 per cent from its closing price of S$6.57 on Wednesday, with 8.9 million shares changing hands.
As at 2.08 pm, the share price eased back down to S$6.84, still up by S$0.27 or 4.1 per cent, with 12.6 million shares changing hands.
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This brought its price-to-earnings (PE) ratio to around 31.1, above those of other blue-chip counters such as UOB, DBS, OCBC and SIA, which had PE ratios in the range of 7.8 to 11.5, according to Yahoo Finance data.
RHB on Thursday raised its target price to S$7.80 from its previous S$5.90 and maintained its “buy” call. CGS International on Tuesday increased its target price to S$7.40 from S$5.60 previously, while reiterating its “add” call.
RHB analyst Shekhar Jaiswal said ST Engineering’s guidance targets imply “steady long-term growth” for the company, even though his estimates for its near-term earnings remained unchanged.
This warrants raising its target price, he said. “We now value the stock based on 2026 estimates to better reflect its long-term growth potential.”
He added that the new target price incorporates an unchanged 4 per cent environmental, social and governance premium over the fair value of S$7.50.
Similarly, CGS International analysts Kenneth Tan and Lim Siew Khee said that ST Engineering’s “solid” medium-term revenue and profit guidance provide “confidence” in its ability to sustain double-digit earnings per share growth across FY2025 and FY2026. They added that the new target price is pegged to forecasts for FY2026.
Defence segment could spur growth
Both RHB and CGS International predicted that ST Engineering will benefit from growth in its defence segment.
By 2029, it expects to reap more than S$7.5 billion from its defence and public security segment, as it sees an “addressable” international defence market worth US$11 billion. The company believes that rising geopolitical tensions – underpinned by developments in Europe and the Middle East – and increased defence spending by governments could bode well for business in that area.
Tan and Lim said: “We see a stronger and clearer earnings growth trajectory supported by a multi-year defence upcycle.”
They pointed out that ST Engineering’s management intends to address the large international defence market by ramping up collaborations with external partners and increasing localisation.
“We believe a successful ramp-up in localised arrangements could be beneficial to margins, given higher-value works undertaken and lower transport costs.” They added that the company sees a strong order pipeline across both munitions and vehicles.
Jaiswal agreed that the company’s defence segment spending could support growth.
“While our 2029 estimates are below ST Engineering’s targets, we believe the strong tailwinds for its commercial aerospace and defence and public security segments will support double-digit profit growth (forecasts) in 2024 to 2027,” he said.
The defence segment could deliver a revenue surpassing S$7.5 billion, reflecting a 9 per cent compound annual growth rate (CAGR) “aided by ST Engineering strengthening its position in delivering solutions for Singapore’s defence and expanding its international defence business”, he said.
Its commercial aerospace segment could hit S$6 billion in revenue or a 7 per cent CAGR, boosted by capacity expansion in airframe and engine maintenance, repair and overhaul services, and investments in next-generation capabilities for composite aerostructures, he added.
The counter closed 5.2 per cent or S$0.34 higher at S$6.91 on Thursday.
