Stock Name: ST Engg
Company Name: SINGAPORE TECH ENGINEERING LTD
9 September 2011: Singapore Technologies Engineering Ltd
Summary: We recently caught up with the management of Singapore Technologies Engineering Ltd (STE) to get an update on the group. As such, we have fine tuned our earnings model but maintained our FY11 earnings estimate of STE at S$510m. At the same time, we assigned a lower valuation multiple of 19.4x forward P/E on our earnings estimates over the next four quarters to arrive at a fair value of S$3.37 (versus $3.58 previously). The new fair value represents 14.2% upside and we maintain our BUY call. Management maintains STE's performance in 2H11 will be stronger than in 1H11, barring unforeseen circumstances. STE's earnings are resilient as a result of 1) its large stable stream of revenue coming from government-related projects; 2) its strong order book and sizeable chunk of its non-government business under long-term contracts; and 3) its profitable and extremely cash generative business model. Combined with a high dividend yield of 5.1%, these factors provide STE good downside protection. This makes STE a good name to own as the outlook on global equity markets turns uncertain, especially for investors who want to stay invested in equities.
Company Name: SINGAPORE TECH ENGINEERING LTD
| Research House: OCBC | Price Call: BUY | Target Price: 3.37 |
9 September 2011: Singapore Technologies Engineering Ltd
Summary: We recently caught up with the management of Singapore Technologies Engineering Ltd (STE) to get an update on the group. As such, we have fine tuned our earnings model but maintained our FY11 earnings estimate of STE at S$510m. At the same time, we assigned a lower valuation multiple of 19.4x forward P/E on our earnings estimates over the next four quarters to arrive at a fair value of S$3.37 (versus $3.58 previously). The new fair value represents 14.2% upside and we maintain our BUY call. Management maintains STE's performance in 2H11 will be stronger than in 1H11, barring unforeseen circumstances. STE's earnings are resilient as a result of 1) its large stable stream of revenue coming from government-related projects; 2) its strong order book and sizeable chunk of its non-government business under long-term contracts; and 3) its profitable and extremely cash generative business model. Combined with a high dividend yield of 5.1%, these factors provide STE good downside protection. This makes STE a good name to own as the outlook on global equity markets turns uncertain, especially for investors who want to stay invested in equities.
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