Following the securing of a shipbuilding contract for the design and construction of a walk-to-work (W2W) vessel for a leading oil and gas company, RHB Bank Singapore’s Shekhar Jaiswal is keeping his “buy” call on on Singapore Technologies Engineering (ST Engineering) at an unchanged target price (TP) of $5.20.
Although the value of the contract was not disclosed, Jaiswal notes that the move marks ST Engineering’s expansion into the market for specialised vessels supporting offshore operations. Expected to be completed by the 1HFY2027, the 97-metre W2W vessel will be able to accommodate 106 persons and will feature an advanced motion-compensated gangway to ensure safe personnel transfers in varying sea conditions and a 10-tonne crane for more effective load handling in rough seas.
Jaiswal writes in his Jan 21 note: “We remain positive on its outlook and expect an earnings compound annual growth rate (CAGR) of around 15% for FY2023 to FY2026, supported by the commercial aerospace (CA) and urban solutions and satcom (USS) segments.”
“For 2HFY2024, we estimate ST Engineering to report revenue of $5.7 billion, 8.2% greater y-o-y and 2.7% higher h-o-h, and a reported profit after tax and minority interests (patmi) of $343 million, a 12.2% increase y-o-y and 1.9% growth h-o-h,” adds the analyst.
Notably, the group’s 3QFY2024 revenue of $2.8 billion accounted for 49% of his 2H2FY2024. Similarly, Jaiswal’s 4QFY2024 revenue estimate of $2.9 billion is slightly ahead of ST Engineering’s 4QFY2024 order delivery guidance of $2.6 billion for the same period to account for revenue from within-quarter business.
He adds: “We also expect ST Engineering to announce 4 cents of dividends for 4QFY2024. Based on our current estimates, we assess that ST Engineering has the ability to pay higher dividends.”
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Meanwhile, Jaiswal’s expectation of the group’s strong profit growth in the FY2024 to FY2026 is supported by its CA segment, which he notes is the second largest segment by revenue. Growth in this segment, he notes, will be aided by continued strong demand for aviation maintenance, repair and operations (MRO) work and continued deliveries of its passenger-to-freighter (PTF) aircraft.
“We maintain that the USS segment should see the fastest growth in FY2023 to FY2026 in terms of earnings before interest and taxes (ebit) CAGR, aided by a turnaround in the satcom business.”
In ST Engineering’s defence and public security (DFS) segment, sustained delivery of defence contracts should also support growth.
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Jaiswal concludes: “We believe ST Engineering, with its relatively strong earnings growth and a defensive dividend payout, should be part of every Singapore investor’s portfolio, especially given the uncertain near-term macroeconomic environment.”
As at 10.59 am, shares in ST Engineering 2 cents higher or 0.43% up at $4.70.
