UOB KayHian upgrades ST Engineering to Buy amid smart city contributions

Singapore five-dollar note Photo by Leslie Shaffer

UOB KayHian upgraded ST Engineering to Buy from Hold, pointing to optimism over smart city and marine revenue.

“STE guided for smart city and marine revenue to double over the next five years. Excluding the former, the rest of the businesses are expected to grow two to three times faster than global GDP growth over the next five years,” the brokerage said in a note on Friday. “We believe that STE’s optimism is due to recent contract wins and global expansion plans. If such overseas contract wins materialize, then STE could morph into a growth stock.”

The brokerage said the five-year plan could see revenue rising at an 8-10 percent compound annual growth rate (CAGR), while it expected margins would be maintained amid expected cost savings, with UOB KayHian estimating net profit could grow at 7.8 percent CAGR, or 10 percent in a bullish case.

The brokerage raised its target price to S$4.10 from S$3.60 after increasing its 2018-20 net profit estimates by 2.5-18 percent.

The stock ended Friday up 0.58 percent at S$3.49, despite the Straits Times Index tumbling 2.0 percent.