ST Engineering upgraded to Buy on ‘renaissance revival,’ says Maybank KimEng

Maybank KimEng upgraded ST Engineering to Buy from Hold, citing “reigniting growth.”

“After three lackluster years due to tough market conditions and restructuring costs, growth catalysts are falling in place,” Maybank KimEng said in a note on Monday. “The aerospace landscape is improving, recent acquisitions hold growth promise, and the rationalisation at Land Systems and Marine divisions is largely completed.”

It raised its target price to S$4.15 from S$3.17 after increasing 2018-20 profit forecasts by 5-14 percent.

Five growth drivers

Maybank KimEng pointed to five factors it expected to drive growth:
1. An improving aerospace landscape on a global trade rebound and better-than-expected passenger traffic growth
2. A robust outlook for its electronics services, which could offer an upside surprise as governments increase smart-city investments
3. The rationalization of the Land Systems and Marine businesses is largely done
4. Recent acquisitions, particularly SP Tel and Aethon, add capability to tap high growth in enterprise ICT, cyber security and the autonomous robot market, and
5. Greater integration across business units and creation of new platforms to partner start-ups should enhance its existing capabilities and potential speed time-to-market for new ideas.

The brokerage also pointed to another positive wildcard: The potential upside from increased U.S. defence spending, which the Trump administration has claimed it wants.

The stock ended Monday up 1.5 percent at S$3.43.