For him, ST Engineering's 1QFY2025 revenue was largely in line but "uneven", with the defence and public security segment growing at a much faster pace compared to the other major business lines.
Even so, he is cheered by the company's "healthy" contract wins of $4.4 billion secured in the quarter, driving total order book to yet another record high of $29.8 billion.
Sum expects core earnings between FY2024 and FY2026 to grow at a compounded growth rate of between 15 and 20%, driven by capacity expansion, faster project delivery across all business segments, strengthening operating margins, and lower interest costs from deleveraging.
His revised target price of $7.70 is based on a valuation multiple of 27x earnings, up from 26x previously, to take into account multiple expansion drivers.
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Sum notes that ST Engineering, trading at 26-28x forward PE, is already priced at a premium to other defence stocks in the Asia Pacific region, which as a whole trade at around 21.9x earnings.
even several leading European names, such as Thales' 25.3x, BAE's 24x and Dassault Aviation's 20.8x.
"This premium appears high even after factoring in ST Engineering’s bright growth prospects.
"Hence, even though we still find ST Engineering’s growth narrative and resilience compelling, we would recommend investors accumulate on weakness," says Sum.
ST Engineering shares changed hands at $7.70 as at 2.07 pm, down 0.65%.
