ST Engineering: Analyst report

Protect your portfolio! This should be the best time to buy STE for its defensive
quality in the face of volatile markets. Indeed, its share price has outperformed the
market by 11% in the last three months. With little room for sharp depreciation in
the US$, we are hanging on to hopes of earnings surprises, which we believe can
offer re-rating catalysts. Consensus expects the US$/S$ to hover at S$1.18-1.20
into 2012, which would have a negligible (1% or S$6m) impact on STE’s PBT in
the worst case. In fact, we believe current valuations of 15x CY12 P/E (below its
average trading band of 16x during the previous crisis) have priced in fears of US$
deterioration and macro uncertainties. No change to our earnings estimates, target
price of S$3.61 (still based on blended P/E, DCF and dividend yields).
• Zero order-book risk. Unlike its conglomerate peers with substantial exposure to
the offshore & marine space, STE’s order book (S$10.8bn) is secure with almost
zero risk of cancellations as 40-50% of its contracts are defence-related.
Commercial contracts are mostly from long-term customers with strong financials
including Fedex, American Airlines and Japanese airlines. STE has also been
chalking up orders from all segments worth about S$1.5bn YTD.
• MRO recovery intact. More than 1,500 narrow-body aircraft (delivered in 2009-
2010) could be scheduled for “C” checks (18-24-month cycle) starting 2H11,
affirming our view that the MRO recovery is on track.
• High yields and cash-rich. STE offers a safe refuge with its fairly attractive
dividend yields of about 6%, only slightly lower than the 7% from telcos and REITs.
The yield is also backed by a solid balance sheet as it continues to generate net
cash (S$220m as of 1H11). It is also one of two companies in Singapore with an
AAA rating (the other being Temasek) from Moody’s.

Unscathed. This should be the best time to buy STE for its defensive quality in the face
of volatile markets. Indeed, its share price has outperformed the market by an average
of 11% in the last three months while other offshore & marine/conglomerate stocks are
down about 10% relative to the market. We believe a solid balance sheet with a netcash
position, a secure order book and below historical average trading valuations
could be its winning factors.

Taken from here

I didn't know ST Engineering was a AAA rated company alongside Temasek.



Funny that analysts should start praising ST Engineering for it's defensiveness now. I would have thought that all counters will drop in a bear market. Maybe, he who drops least, wins. lol!

Again, it all boils down to one's money management.