CGS-CIMB: ST Engineering to target big increases in ‘smart city’ revenue

Singapore five-dollar note Photo by Leslie Shaffer

ST Engineering is guiding that its smart-city related revenue will at least double by 2022, CGS-CIMB said in a note last week after attending the company’s investor day in Singapore.

It noted that the smart-city category, mainly led by the electronics division, had revenue of around S$1 billion by the end of 2017, from new and existing orders. Less than 50 percent of the revenue from the category was from Singapore, with the U.K. and Canada the biggest export markets, it noted.

The category includes items such as smart meters and smart street lights, as well as cyber/physical security and autonomous public transport solutions, the brokerage noted.

“We think the target is achievable given the sustained contracts won (around S$2 billion per annum) by its electronics division, boosted by advanced electronics and ICT solutions orders since 2014,” the brokerage said, pointing to orders of around S$1 billion a year over 2006-13.  “The growing awareness of smart city solutions and cyber security could scale up this unit’s annual win to around S$3 billion per annum in the next three years, in our view.”

The company expected marine segment revenue to double from 2017’s S$638 million by 2022, the brokerage said. CGS-CIMB said that revenue recognition from the engineering, procurement and construction portion of a desalination plant contract would help achieve the target.

ST Engineering also estimated its addressable market for defense exports at S$7 billion globally, with the company targeting the final award of an amphibious combat vehicle for the U.S. Marine Corps, which could be worth more than US$1.3 billion, the note said.

Overall, CGS-CIMB said the group’s five-year revenue compound annual growth rate (CAGR) could be 7-11 percent, but the brokerage said it expected growth would likely be “back-loaded” to 2021-22. j

It rates the stock at Add with a S$3.80 target price.

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