DBS Group Research analysts Jason Sum and Suvro Sarkar have reevaluated Singapore Technologies Engineering (S63 0.53%) following its 3QFY2023 earnings, indicating a significant shift in their perspective. They have revised the target price upward, signaling a departure from perceiving the company solely as a defensive investment towards recognizing its emergence as a compelling growth story.
Traditionally regarded as a stable but slow-growing entity, ST Engineering’s recent strategic moves have transformed this perception. Notably, its substantial acquisition of TransCore in 2018 marked a pivotal moment, catalyzing diversification and bolstering organic investments toward future growth avenues. Sum and Sarkar anticipate sustained mid-single-digit revenue growth over the long term, attributing this shift to the company’s proactive initiatives.
Maintaining their “buy” recommendation, the DBS analysts have raised the target price from $4.20 to $4.50, citing the company’s imminent transition back into a growth trajectory, particularly starting from FY2024. Forecasts suggest potential earnings growth between 15% and 20% in the upcoming year, a notable shift from the 3-5% projection for the current FY2023.
Anticipating a possible uptick in dividends – currently set at four cents per quarter – as a potential catalyst for reevaluation, the analysts emphasize the impending momentum shift in ST Engineering’s trajectory.
Despite a brief setback in its urban solutions and satcom division for FY2023 due to delayed customer spending, analysts remain optimistic. They foresee a rebound in FY2024, underpinned by major project escalations and optimized operational costs in satellite operations.
Various analysts express bullish sentiments, projecting sustained growth across different segments of ST Engineering. These forecasts are supported by expectations of increased defense and cybersecurity spending due to heightened geopolitical tensions and a recovery in international travel propelling commercial aerospace business.
Strategic expansions in hangar capacity across China, the USA, and Singapore are expected to bolster order deliveries. Furthermore, an order book of $27.5 billion (providing three years of revenue visibility) and robust cash flows position the company favorably.
In conclusion, industry experts remain optimistic about ST Engineering’s prospects, foreseeing a transition towards a growth-oriented trajectory backed by strategic expansions, increased order wins, and a recalibration of its business divisions for sustained profitability.
