"We continue to believe that STE offers stability and growth potential, and is a quality name to accumulate on dips for the long-term investor’s portfolio," says OCBC.
In its most recent quarterly update, ST Engineering has painted a relatively defensive picture amid the trade war.
The company has described potential “immaterial” post global tariff and trade developments financial implications where there's potential deferment for its commercial aerospace orders but not cancellations. Additional costs can also be passed through to end customers.
Given the big jump in ST Engineering's share price, its yield has been significantly compressed. It plans to increase its absolute payout slightly though.
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For FY2024, it paid a total of 17 cents. For this FY2025, it plans to increase its total dividend to 18 cents per share, which will consist of an interim dividend of 4 cents each for the first three quarters and a final dividend of 6 cents.
Down the road from FY2026 onwards, the company will pay out about 1/3 of its y-o-y increase in its earnings as incremental dividends.
OCBC notes that ST Engineering remains on track to hit its 2026 targets that were first unveiled during the 2021 Investor Day.
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This coming five years to 2029, the company aims to grow its revenue by more than 2.5x the global GDP growth rate to $17 billion.
It is also targeting earnings to grow at a CAGR of up to 5 percentage points faster than revenue's CAGR.
"With the rising interest in defence stocks globally, sentiment in ST Engineering is also more positive as one of the few defence proxy plays in the region," says OCBC, which has kept its "hold" call but raised the fair value for this counter from $7.75 to $8.54, supported by a slight ESG premium.
"The group remains well-positioned to ride on aerospace & defence capex upcycle, and there are positive structural trends as well for the urban solution and satcom segment over the longer term," says OCBC.
ST Engineering shares closed at $7.99 on June 4, down 0.25% for the day.
