Brokers’ Digest: CLAR, CICT, CNMC Goldmine, KORE, Wilmar, Parkway Life REIT, FLCT, ST Engineering

On the other hand, while OCBC Investment Research (OIR) has similarly maintained its “buy” call, the bank has reduced its FV to $3.30 from $3.32 previously.

RHB analyst Vijay Natarajan notes that the REIT’s FY2024 and 2HFY2024 financials were in line, with dividend per unit (DPU) back in “growth mode”.

He writes in his Feb 10 report: “Portfolio occupancy was up q-o-q while rent reversion remained strong in low double digits with stable valuation. Financing costs, too, are near the peak.”

See also: DBS is RHB’s top pick with dividend yield ‘too good to ignore’

Overall, CLAR is one of Natarajan’s top industrial Singapore REIT (S-REIT) picks, given its focus on asset development, redevelopments and enhancements. “We are positive about this move as we expect it to unlock significant untapped value, enhance returns and diversify earnings.”

The REIT plans to spend $136.2 million to redevelop its LogisHub @ Clementi asset, turning this asset from a cargo lift warehouse to a modern seven-storey ramp-up asset with a cold storage facility.

Meanwhile, Natarajan notes that there is potential to unlock value from CLAR’s data centre assets. In particular, Telepark, valued at around $270 million, is likely to be vacated by April.

See also: Citi upgrades Seatrium to 'buy' with TP of $2.65 on valuation and potential resilience with share buyback programme

The REIT’s management highlighted the asset’s attractive location next to Tampines MRT and good redevelopment potential for the asset, including possibly divesting it.

“The remaining lease expiries are staggered till 2030, posing limited downside risk to near-term DPU. Welwyn Garden City, UK has been decommissioned in June 2024 and CLAR is currently working on securing a new tenant as well as regulatory approvals for the development of a 60 megawatt (MW) data centre.”

In FY2024, CLAR’s rent reversion of 11.6% with positive double-digit rent growth was seen across all markets. For FY2025, the REIT has guided for positive mid-single-digit reversion, which Natarajan believes is conservative.

Financing costs also remained stable q-o-q at 3.7%, with the analyst anticipating another 10 to 20 basis point (bps) rise in FY2025 before tapering off.

Meanwhile, Morningstar’s Lee writes in his Feb 6 report that CLAR’s 2HFY2024 performance was in line with his expectations. While the REIT’s portfolio occupancy rate improved by 0.7 percentage points q-o-q to 92.8% as of end-2024, Lee adds that the trust also delivered on its positive rental reversion target, recording an 11.6% rental reversion for 2024.

He adds: “After rolling our model, we lowered our distribution per unit estimates for FY2025 to FY2027 by 2.8% to 7.8% after adjusting our interest cost assumptions for a higher-for-longer interest-rate environment. The trust continues to appear undervalued and trades at an attractive 2025 distribution yield of 5.8%.”

The analyst is also positive about CLAR’s strategy to grow its logistics portfolio in the US with its acquisition of Summerville Logistics Center and DHL Indianapolis for $248 million, which has an attractive NPI yield of 7.4%.

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CLAR is targeting $1.5 billion for redevelopment projects in the next two to three years.

“We believe management’s plans to renovate and redevelop its existing assets should help create value for the trust during periods when the acquisition environment is challenging,” writes Lee.

With that, Lee has assigned four stars to the stock, which, according to Morningstar’s definition, indicates that an “appreciation beyond a fair risk-adjusted return is likely” for investors.

Finally, the team of analysts at OIR notes that CLAR’s rental reversions for the 4QFY2024 lost momentum and came in at 8.6% as renewals of leases signed during the pandemic at lower rates were now mostly finished.

They write: “Looking ahead, CLAR guided for its FY2025 rental reversions to be in the positive mid-single-digit range, which we believe is achievable.”

“There are some risks ahead, as Singtel, its largest tenant by monthly gross revenue, has indicated that it will not be renewing its lease which is expiring in one to two months’ time for the data centre property at Tampines. CLAR may opt to convert the data centre to a commercial property, given its location. Another key tenant may also not renew its lease at Galaxis in the one-north precinct, in our view,” writes the team.

In FY2024, the REIT’s aggregate leverage ratio declined 38.9 % as at Sept 30, 2024 to 37.7 %, while its weighted average all-in debt cost was flat q-o-q at 3.7 %. The team notes that management expects this to increase in FY2025 but to stay below 4%. They add: “82.7% of CLAR’s borrowings had been hedged, which will provide a decent buffer in a higher-for-longer interest rate environment. Given the challenges in sourcing for acquisitions against the backdrop of higher borrowing costs, CLAR has focused its resources on development and asset enhancement initiatives to improve the returns of its existing portfolio.”

The REIT will also target $300 million to $400 million of divestments to lighten its balance sheet for potential portfolio acquisitions. As such, the OIR team has raised its FY2025 DPU forecast by 1.7%, as well as roll forward their valuation and factor in a higher cost of equity assumption of 6.6%. — Douglas Toh

CapitaLand Integrated Commercial Trust
Price targets:
CGS International ‘add’ $2.45
OCBC Investment Research ‘buy’ $2.35
Morningstar ‘four star’ $2.32

‘Strong’ FY2024 performance

CGS International (CGSI) Research analyst Lock Mun Yee has kept her “add” call and $2.45 target price on CICT after the REIT reported 1.2% y-o-y gains in 2HFY2024 revenue to $794.4 million and 1.3% y-o-y gains in 2HFY2024 net property income (NPI) to $571.1 million.

2HFY2024 distributable income of $385.7 million, up 6.4% y-o-y, included maiden contributions from its 50% stake in ION Orchard. However, the 2HFY2024 distribution per unit (DPU) of 5.45 cents was stable y-o-y, owing to a larger unitholder base following CICT’s equity fundraising in September 2024.

CICT’s portfolio valuation rose 6.2% y-o-y to $26 billion in its end-FY2024 valuation exercise, lifted by the ION Orchard acquisition and valuation upside from the Singapore and Germany portfolios but slightly offset by declines in Australia.

Aggregate leverage dipped to 38.5% from 39.4% at the end of 3QFY2024 as divestment proceeds were utilised to pare down debt.

On the other hand, OCBC Investment Research is staying “buy” on CICT but with a lower target price of $2.35, down from $2.41 previously.

CICT’s average cost of debt stayed flat q-o-q at 3.6% but management expects this to rise in FY2025, although this is likely to be below 4%.

After adjustments, OCBC has trimmed their FY2025 DPU forecast by 0.8% due in part to a lower assumed proportion of management fees taken in units. “We also increase our risk-free rate assumption by 50 basis points to 2.75% and after rolling forward our dividend discount model valuation, our fair value estimate slips.”

Morningstar Equity Research analyst Xavier Lee says CICT’s 2HFY2024 results were “in line” with expectations, keeping CICT at four stars based on his house’s five-star rating system.

“Given no surprises, we retain our fair value estimate of $2.32 per unit after rolling our model and finetuning our assumptions. Based on current prices, the trust is undervalued and trades at an attractive 2025 dividend yield of 5.7%,” he adds.

Lee likes CICT’s portfolio of “high-quality office and retail assets” and expects the completion of asset enhancement works at IMM Building and Gallileo — located in Frankfurt — to drive near-term growth.

Finally, CICT’s FY2024 results came in above DBS Group Research’s expectations. In a Feb 6 note, DBS analysts Geraldine Wong and Derek Tan are maintaining a “buy” on CICT with an unchanged $2.30 target price.

CICT’s higher DPU was “a positive surprise”, say the DBS analysts, considering the enlarged unit base following the equity fundraising exercise for the ION Orchard acquisition.

“Management intends to maintain the 50/50 management fee structure (in contrast to the potential increase to approximately 70% mentioned in the ION Orchard announcement), which reinforces our view that DPU growth is operationally driven and sustainable,” they write.

ION Orchard itself performed ahead of expectations, with a two percentage point increase in occupancy to 98% since the deal was announced in September 2024. CICT boasts “attractive” forward FY2025 yields of 5.6%, they add. Wong and Tan say they like CICT — “a leader in the S-REIT space” — as a proxy to Singapore’s “more resilient and stable economy”. — Jovi Ho

CNMC Goldmine
Price target:
Lim & Tan Securities ‘buy’ 43 cents

Rising gold prices

Lim & Tan Securities analyst Chan En Jie has initiated a “buy” call on CNMC Goldmine as he sees several upsides for the company on the back of higher gold prices.

“As a gold-mining company selling at the spot rate, CNMC is a direct beneficiary of rising prices for the precious metal,” Chan points out. In his report, Chan says average gold prices have risen from US$1,960 per ounce in 2023 to US$2,266 per ounce in the first half of 2024 and closing at US$2,624 per ounce at the end of the year. As at Feb 6, gold is trading at around the US$2,860 ($3,877) mark per ounce.

Demand for gold rose in recent years due to its status as a safe-haven asset amid geopolitical tensions. Demand also increased on the back of central bank purchases and interest rate cuts and is seen as a hedge against inflation.

Chan also notes that CNMC’s net profit for its 1HFY2024 results ended June 31, 2024, surged by 160% y-o-y from higher gold prices. As such, the analyst continues to expect surging gold prices to contribute “significantly” towards CNMC’s bottom line.

On Jan 21, CNMC guided that it expects to report a “significant overall improvement” in its FY2024 net profit on a y-o-y basis. This was attributed to the higher revenue from the sale of gold, lead and zinc concentrate during the year. CNMC is expected to release its FY2024 results on or before Feb 28.

CNMC is also seeking to capitalise on the rising gold prices in 2025 with the expansion of its gold production capacity at Sokor Gold Field.

“To extract more higher-grade gold ores, the company is building its second underground gold mining facility at Sokor, which is expected to be completed in 2025,” Chan notes. “In addition, CNMC is expanding its carbon-in-leach (CIL) plant, which will increase processing capacity by 60% to 800 tonnes of gold ore a day.”

Beyond gold, CNMC’s diversification into lead and zinc concentrates since 2023 provides an additional revenue stream to its bottom line.

“The recent entry into a 10-year agreement to sell these base metals to a 3rd party commodities trader will provide long-term recurring income for CNMC. Contributions are substantial at about 35% of total revenues,” says Chan.

The analyst has given an initial target price of 43 cents, which represents an upside of 38.7% to CNMC’s last traded price of 31 cents as of his report dated Feb 6. The target based on discounted cash flow (DCF) is pegged to a blend of 12 times CNMC’s FY2024 P/E of 12.1 times, around its peers’ average. — Felicia Tan

Keppel Pacific Oak US REIT
Price targets:
DBS Group Research ‘hold’ 28 US cents
UOB Kay Hian ‘buy’ 33 US cents

Green shoots emerging

Analysts from DBS Group Research and UOB Kay Hian have increased their target prices on Keppel Pacific Oak US REIT (KORE) while keeping their respective “hold” and “buy” calls.

In FY2024 ended Dec 31, 2024, KORE’s distributable income fell by 8.8% y-o-y to US$47.6 million ($64.3 million).

DBS analysts Derek Tan and Dale Lai have upped their target price to 28 US cents (38 cents) as they see “green shoots emerging” with stronger leasing velocity and rising occupancy rates. The new target price is due to a higher P/B peg of 0.4 times.

As at Dec 31, 2024, KORE’s portfolio occupancy rate stood at 90%, up from 88.7% a quarter ago, which is “commendable”, note Tan and Lai.

Furthermore, with more companies in the US asking their employees to return to the office full-time, the analysts believe space consolidation risks are expected to ease in the coming year, thus benefiting KORE.

Although the REIT manager says there are known expiries and vacancies coming up, it remains proactive in leasing to build up its cash flows.

Despite the higher target price estimate, Tan and Lai have lowered their distribution forecasts in FY2025 and FY2026.

“We have aligned our margin assumptions to FY2024 levels and assumed longer vacancy periods for Plaza and Westmoor in FY2025 on top of a slight uptick in interest rates (4.6% versus 4.5% previously),” the analysts write in their Feb 6 report.

“While the focus is on potential dividend resumption in FY2026, we believe a sustainable payout should be pegged to adjusted free cash flows,” they add.

With the payout estimated at around 40% of KORE’s overall distributable income, the analysts believe this should result in a distribution per unit (DPU) of 1.7 US cents and a yield of 7.1% for FY2026.

The estimates may be tweaked after there is more clarity on the manager’s capex requirements.

While the analysts believe the “worst is over” for KORE, the year-long wait for DPUs to resume could delay buying interest, thereby keeping KORE’s unit price trading sideways for now, the analysts note.

UOB Kay Hian analyst Jonathan Koh has also given the REIT a higher target price of 33 US cents from 32 US cents previously after the REIT’s FY2024 distributable income came in line with expectations.

In his Feb 5 report, he notes that the lower gross revenue and NPI were due to higher repair and maintenance expenses. However, the REIT saw an improvement in portfolio occupancy of 90% in the 4QFY2024 and a turnaround in rental reversions.

Other factors highlighted include the US federal government’s call for employees to return to a five-day work week. With this, the private sector may follow suit. The successful implementation of the return-to-office model by large corporations such as Amazon, JPMorgan and AT&T may also pave the way for other companies to do likewise, Koh writes.

On the back of this trend, KORE may benefit from the recovery stemming from the work-from-office momentum with demand for office space. After all, companies that downsized prematurely would now need additional office space to accommodate more employees returning to the office, Koh adds.

KORE is also tipped to benefit from trends such as the interstate migration towards the Sun Belt states such as Texas, North Carolina, South Carolina, Florida and Tennessee. Growth cities in the Sun Belt states accounted for 38.2% of KORE’s NPI as at Dec 31, 2024.

These markets also led the recovery, with leasing activities reaching 95% of pre-pandemic levels in the 2HFY2024. KORE is also seeing recoveries taking place in gateway markets, with leasing activities at 76% of pre-pandemic levels.

Moving forward, the REIT expects its portfolio occupancy to remain above the industry average despite known vacates at Westmoor Center in Denver (100,000 sq ft) and The Plaza Buildings in Bellevue (40,000 sq ft) in 2025. Due to the vacancies, however, Koh expects KORE’s portfolio occupancy to take a “small dip” in 1QFY2025 before recovering back to 88%-89% by end-2025.

“Management expects rental reversion to range from –5% to +5% in FY2025,” he writes.

KORE’s manager also expects its physical occupancy rate to improve to a normalised level of 70%–80% in 2025; its physical occupancy was 72% in the 4QFY2024, which reflects the hybrid arrangements of an average 3.5 days spent in the office per week.

Despite the higher target price, Koh has trimmed his distribution per unit (DPU) forecast for FY2026 and FY2027 by 4% as he expects a lower NPI margin in both years.

Based on his estimates, KORE provides an FY2026 distribution yield of 15.6% and trades at a price to net asset value (P/NAV) of 0.35 times, which is a 65% discount to its NAV per unit of 69 US cents. — Felicia Tan

Wilmar International
Price target:
UOB Kay Hian ‘hold’ $3.18

Improving outlook

However, with expectations of a modest rise in Chinese consumer sentiment to spend on food products and sustained palm oil refining profit margins, they have raised their target price for the stock from $3.00 to $3.18.

In their Feb 7 note, Mo and Tan say that Wilmar is likely to report a 4QFY2024 core net profit of between US$330 million ($447.8 million) and US$340 million, versus 3QFY2024’s US$208 million and US$424 million recorded in 4QFY2023.

This will bring the company’s full-year core net profit to between US$1.14 billion and US$1.15 billion, which is 3%–4% lower than their forecast and 9%-10% lower than consensus expectation.

According to Mo and Tan, the company is set to enjoy higher crude palm oil (CPO) prices and improved processing margins. Besides lower fertiliser costs, Malaysian and Indonesian export levy hikes in November 2024 have helped drive up overall palm refining margins as well. Soybean-crushing margins also increased due to more demand for meals in the wake of tariff threats.

Wilmar’s China’s sugar division, on the other hand, is likely to see increased sales volumes but lower margins as higher spending in the hotel, restaurant and catering (HoReCa) sector increases more medium & bulk pack sales.

Negative weather could also put a dampener on expected earnings with delayed harvests in areas like Australia where heavy rain this quarter delayed sugar harvests.

There are, nonetheless, several positive attributes for this stock. Last December, Wilmar announced the acquisition of a 31.06% stake in Adani Wilmar (AWL) from its joint venture partner Adani, which will bring Wilmar’s stake in this India-based business to 74.37% stake. “This acquisition is expected to significantly enhance Wilmar’s profitability in 2026”, suggest Mo and Tan.

They believe that Wilmar will no longer likely pay a special dividend as earlier expected as it channels resources to increase its stake in Adani Wilmar although investors will still enjoy a “decent” dividend yield. “We deem this as an opportunity to accumulate,” the analysts say.

In another positive sign, Kuok Khoon Hong, Wilmar’s chairman and CEO, has continued with his regular share purchases. In 4QFY2024, he paid between $2.99 and $3.10 per share to buy back a total of 8.8 million, demonstrating the manager’s rather confident stance on Wilmar International’s outlook.

Due to the “modest” improvement seen in consumer sentiment in China, Mo and Tan have raised their P/E for the food ingredient business from 16 times to 17 times. They are, however, keeping their P/E of 11 times for both feed & industrial products and plantations & sugar mills business segments. The higher target price of $3.18 is based on a blended FY2025 P/E of 9.8 times. — Michael Ryan Tan

Parkway Life REIT
Price targets:
OCBC Investment Research ‘buy’ $4.60
DBS Group Research ‘buy’ $4.75

Significant rental uplift coming

OCBC Investment Research has raised its fair value for Parkway Life REIT (PLife REIT) from $4.49 to $4.60, despite a slight 1.3% y-o-y dip in its distribution per unit (DPU) to 7.38 cents for its 2HFY2024 ended Dec 31, 2024, as the unit base enlarged following its first ever equity fund raising exercise last October.

In 2HFY2024, PLife REIT’s revenue and net property income dipped by 0.3% and 1.1% y-o-y, as revenue booked in yen weakened when translated into Singdollar. On the other hand, contributions from newly acquired properties added to the bottom line.

“We continue to like PLife REIT for its recurring DPU growth despite the macro and forex volatility that has plagued most S-REITs since the pandemic,” says analyst Ada Lim, who has kept her “buy” call on the counter.

The management, says Lim, is guiding for continued stable DPU growth in FY2025, thanks to the recent acquisition of 11 nursing homes in France.

The coming FY2026 will enjoy a more “significant” uplift, with expected rental growth after ongoing renewal works at the key Mount Elizabeth Hospital.

Lim likes this counter for its long-term lease structures for a steady stream of rental income, which means there is downside protection for market downturns.

“At the same time, there is also growth potential through rental escalations and upside sharing with tenants.

“A combination of organic rental growth, accretive acquisitions and prudent capital management has allowed PLife REIT to grow its distributions consistently since 2007, and we look favourably upon the REIT’s potential to continue along this trajectory, supported by secular megatrends such as a rise in foreign medical tourism in Singapore and an ageing population in Japan,” adds Lim.

For now, she has fine-tuned her forecasts to increase her cost of equity assumption from 5.6% to 5.8% on a higher risk-free rate of 2.75%, partially offset by a slight decline in the equity risk premium, leading to a higher fair value estimate of $4.60.

On the other hand, DBS Group Research is bullish about the REIT but has a trimmed target price of $4.75 from $4.80.

Tabitha Foo and Derek Tan expect PLife REIT to embark on its next leg of growth by exercising its right of first refusal on Mount Elizabeth Novena, valued at around $2 billion. This key re-rating analyst has not been priced in, the analysts say. Their slightly lower target price of $4.75 takes into account lower estimates for revenue in Singapore and higher cost of debt assumptions.— The Edge Singapore

Frasers Logistics and Commercial Trust
Price targets:
CGS International ‘add’ $1.35
DBS Group Research ‘buy’ $1.10
Morningstar ‘five star’ $1.14

Rosy 1QFY2025 update

In its 1QFY2025 ended Dec 31, 2024 business update, Frasers Logistics and Commercial Trust (FLCT) reported an active leasing momentum with overall positive rent reversions achieved. It saw 175,000 sqm of leases and renewals, with logistics and industrial (L&I) rental reversions coming in at 21.3% higher (outgoing vs incoming) and 41.8% higher (average vs average) for about 126,800 sqm of new/renewal leases signed in 1QFY2025.

The trust has also continued its prudent capital management, with a 4.9 times interest coverage ratio (ICR), compared to 5.0 times in the previous quarter. The trailing 12-month borrowing cost stands at 2.9%, while the trailing three-month borrowing cost is at 3.1%.

Following the announcement, analysts have kept a rather positive view of the counter, as the trust’s outlook is expected to be rosy.

CGS International has kept its “add” call and $1.35 target price on FLCT, as analyst Lock Mun Yee likes the trust’s L&I segment that “continues to shine”, as well as its visible inorganic growth potential and robust balance sheet.

Within the commercial portfolio, there was occupancy slippage at Alexandra Technopark (ATP), 357 Collins St and Blythe Valley Park, partly offset by an uptick at Central Park, Maxis Business Park and Farnborough Business Park.

According to management, about 25% of Phase 1 (returned in February 2024) and 29% of Phase 2 space (expired in December 2024) previously occupied by Google has been backfilled to date, implying that about 27%–28% of the total space to be returned by Google would have been leased out, according to CGS International’s estimates. Meanwhile, the Commonwealth of Australia lease at Caroline Chisholm Centre was renewed, extending the weighted average lease expiry (WALE) to 12.5 years.

During the first quarter, gearing rose to 36.2% after the acquisition of the trust’s maiden Singapore logistics asset and borrowings stood at 3.1%. Management has guided that its average funding cost is likely to rise to mid-3% if its $709 million of debt maturing in FY2025 is refinanced at current market rates. As for growth strategies, FLCT said it continues to evaluate both acquisition and divestment opportunities to optimise its longer-term portfolio returns.

DBS Group Research, too, has maintained its “buy” call but lowered its target price on FLCT to $1.10 from $1.30 previously.

Analysts Dale Lai and Derek Tan like FLCT as a large-cap logistics REIT with a sizeable debt room. FLCT has one of the lowest gearing of about 36% compared to its peers and a debt headroom of over $400 million before gearing reaches 40%.

Following its divestment of Cross Street Exchange (CSE), FLCT has been actively redeploying proceeds into higher-yielding assets. Recently, FLCT made its maiden acquisition of a logistics facility in Singapore.

Lai and Tan also see development and asset enhancement initiative (AEI) projects as another growth driver.

“Having successfully completed several forward-funded development projects in the past two years, we believe further development and AEI projects will complement FLCT’s acquisition plans going forward,” say the analysts.

In addition to the recently completed development of Ellesmere Port (UK), FLCT has an ongoing development in Maastricht (Netherlands). “We understand that the REIT will continue to focus on acquiring forward-funded projects or assets with “value-add” opportunities, such as those with potential for expansion,” add Lai and Tan.

The analysts are also upbeat on the trust’s right of first refusal (ROFR) pipeline from its sponsor. Since its merger with Frasers Commercial Trust (FCOT) in 2020, the FLCT has acquired assets worth about $800 million from its sponsor. Despite this, FLT still has the largest ROFR pipeline, valued at more than $5.0 billion, which could double its portfolio, providing unparalleled visibility. Its currently low gearing also provides it with ample debt headroom to fund acquisitions.

Meanwhile, Morningstar has a “five out of five” rating on FLCT, where analyst Xavier Lee believes that appreciation beyond a fair risk-adjusted return is highly likely over a multi-year time frame. Scenario analysis developed also indicates that the current market price represents an excessively pessimistic outlook, limiting downside risk and maximising upside potential.

Management highlighted that they would like to use their debt headroom to pursue growth and may reduce some of the capital gains distribution from its divestment gains. That said, they are mindful of investors’ concern over the impact it may have on its DPU and shared that they will look to strike a balance between growth and unitholders’ return.

“We are cutting our fiscal FY2025–FY2027 DPU estimates by 5.3%–6.6% after lowering our capital distribution forecasts and increasing our financing cost assumptions to account for the higher for longer interest rate environment. However, our fair value estimate of $1.14 per unit is retained as our key assumptions on the terminal value remain intact,” says Lee, who is of the view that the units in FLCT are undervalued currently

Lee also likes the trust’s portfolio of high-quality logistics and industrial assets in Australia, which are still enjoying favourable demand and supply dynamics.

Management notes that the leasing environment remains challenging for its Australian commercial properties, as the trend of hybrid and remote work is here to stay. On the other hand, management expects the L&I portfolio to continue to register robust rental reversion numbers, given that the existing leases are 20%–30% below the current market rents.  — Samantha Chiew

Singapore Technologies Engineering
Price targets:
CGS International ‘add’ $5.30
Citi Research ‘buy’ $5.12

Bullish views ahead of FY2024 report

“From here on, we think ST Engineering will report quarterly order wins two to three weeks before its results announcement to provide investors more colour on its operations,” write the CGSI analysts in their Feb 6 report.

In the quarter, the group’s commercial aerospace (CA) segment order wins climbed 140% q-o-q and 80% y-o-y to $1.8 billion, thanks to engine maintenance, repair and operations (MRO) for LEAP-1B engines and nacelle contracts.

Order wins in the group’s defence and public security (DPS) segment were similarly strong at $1.7 billion, an 80% q-o-q and 13% y-o-y growth, mainly due to contributions from Kazakhstan Paramount Engineering, 155mm ammunition order wins, new digital systems contracts and finally, shipbuilding contract for a walk-to-work vessel used in the oil and gas (O&G) industry.

Following the trend, order wins from the urban solutions and satcom (USS) business were decent at $700 million, a 48% q-o-q and 9% y-o-y improvement. This came on the back of rail contracts in Asia, contracts for tolling systems in the US, smart city contracts in Singapore, and various Satcom contracts.

Tan and Lim write: “Given the strong 4QFY2024 order wins, we would expect its end-4QFY2024 order book to be higher than the $26.9 billion as at end-3QFY2024.”

They expect ST Engineering’s 2HFY2024 core profit to arrive in line with Bloomberg consensus at $366 million, a 9% h-o-h and 24% y-o-y improvement.

“We expect 2HFY204 revenue of $5.9 billion, driven mainly by strong defence performance as all sub-segments likely saw double-digit growth, healthy CA growth from elevated MRO demand but partially offset by passenger-to-freighter (PTF) execution slowdown and slight USS growth as TransCore growth was weighed by Satcom decline,” note Tan and Lim.

Overall, the analysts like ST Engineering for its double-digit FY2025 earnings per share (EPS) growth as the group benefits from aerospace and defence tailwinds.

Over at Citi Research, analyst Luis Hilado is maintaining his “buy” call for the stock at a target price of $5.12.

However, Hilado is keeping a weather eye on the impact of the US dollar on the group’s businesses.

He writes: “Management previously indicated that every 1% movement in the US dollar has an around $24 million impact to revenues but that actual profit impact is marginal due to active hedging.”

“The announcement ahead of the quarterly update represents an improvement in the pace of disclosure and signals management confidence in its future order book growth, in our view.”

Hilado sees ST Engineering’s topline momentum driving operational leverage and margin improvement across its core businesses.

He notes: “We recognise the existence of near-term risks but take positively that a healthy base of contracts to win can provide the economies of scale to offset such.” — Douglas Toh