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ST Engineering - Investor Day Takeaways: Capacity for growth

Shared By Stock Fanatic on Monday, March 26, 2018 | 26.3.18

ST Engineering held an Investor Day on 22 March 2018, highlighting growth opportunities in Smart City and defence export, and announced several FY 2022 financial targets.

● ST Engineering aims to leverage on its track record in Singapore to pursue Smart City and defence export opportunities, with a target to more than double Smart City revenue of S$1 bn in 2017 by 2022.

● Based on our estimates, STE’s revenue could potentially grow from S$6.6 bn in 2017 to S$10.1 bn in 2022, representing fiveyear revenue CAGR of 8.7%, and lead to 2020 revenue being 12% above consensus estimates.

Maintain OUTPERFORM. Our target price of $4.00 is based on a DCF with near-term revenue growth of 5-6%. In a scenario where STE achieves revenue growth of 9% p.a. through 2022 and maintains margins, share price could reach $5.10. Combined with a stable dividend payout implying dividend yield of 4.3%, total shareholder return could reach 12.3% per annum.

Investor Day focused on growth
ST Engineering held an Investor Day on 22 March 2018, highlighting growth opportunities in Smart City and defence export, and announced FY 2022 targets of

(1) more than doubling Smart City revenue,

(2) CAGR of 2-3x global GDP growth rate for other businesses,

(3) with two-thirds of revenue growth from outside Singapore, and

(4) net profits to grow in tandem with revenue.

Opportunities in Smart City solutions and defence export
ST Engineering aims to leverage on its track record in Singapore to pursue and expand on overseas Smart City opportunities including

(1) smart security,

(2) smart environment, and

(3) smart mobility.

Based on management’s target, Smart City revenue of S$1 bn in 2017 is expected to more than double by 2022. ST Engineering is also pursuing defence export opportunities, with a potential pipeline of S$7 bn worth of projects in key markets including the United States, Europe, the Middle East & Africa, and Latin America.

Revenue could grow by 9% CAGR through 2022
Based on our estimates, STE’s revenue could potentially grow from S$6.6 bn in 2017 to S$10.1 bn in 2022, assuming an average global GDP growth of 3% over the next five years and a doubling of Smart City revenue. This would translate into a five-year revenue CAGR of 8.7%, and lead to 2020 revenue being 12% above consensus estimates.

Technical Analysis
Daily Chart
Maintain OUTPERFORM
Our target price of $4.00 is based on a DCF with near-term revenue growth of 5-6%. In a scenario where STE achieves revenue growth of 9% per annum through 2022 and maintains margins, the share price could reach $5.10. Combined with management commitment to maintain a stable dividend payout which would imply a dividend yield of 4.3%, total shareholder return could reach 12.3% per annum. (Read Report)

Source : Credit Suisse Asia Pacific Daily Research


Posted on Monday, March 26, 2018 | 26.3.18
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