- RE-ITERATE BUY Entry – 3.80 Target – 4.10 Stop Loss – 3.65
- STE is a global technology, defence and engineering group serving customers in more than 100 countries. The group uses technology and innovation through its diverse portfolio of business across the aerospace, smart city, defence and public security segments. STE is a component stock of the FTSE Straits Times Index, MSCI Singapore, iEdge SG ESG Transparency Index and iEdge SG ESG Leaders Index.
- Good first half. STE reported a 15% YoY increase in 1H2021 net profit to S$296mn. Defence & Public Security segment still contributes more than half of overall sales, followed by Commercial Aerospace at 31% of 1H2021 sales and 15% from Urban Solutions & Satcom. Almost a third of sales is derived from Asia, followed by 21% from the US and 15% from Europe.
- Short-term challenges…STE, in its 3Q business update, indicated that the chip shortage has impacted IoT, satcom and speciality vehicles. We note that this is not only specific to STE, but has impacted many of the technology-related manufacturers we follow in Singapore.
- …offset by rock-solid order book. Despite the short-term challenges from the chip shortage, the group’s order book rose to another record of S$18.2bn at the end of 3Q2021, up from the previous record of S$16.8bn it reported at the end of 2Q2021. STE expects international flights to help drive greater Maintenance, Repair and Overhaul (MRO) recovery.
- Positive consensus estimates. Street estimates are overall bullish, with 10 BUYS and 2 SELLS. The average 12m TP if S$4.39, implying a 15% return. STE currently trades at 21x FY2021 and 20x FY2022 P/E. STE will report its full year ended 31 Dec 2021 on 25 February 2022, before the Singapore trading market opens. An analyst & media briefing will be held on the same day at 11am.
STE reports its second consecutive quarter or record high order book
