ST Engineering

ST Engineering: UOB Kay Hian maintains Buy with $3.78 TP. Note that in 2Q12, STE secured $1.5b worth of new contracts, a 100% qoq increase, suggesting that 2Q12 orderbook will likely surpass that of the S$12.3b achieved at end-11. In addition, believe that order wins of S$750m in 1Q12 would have been higher than reported as advanced payments of S$1.7b was at a record high. (STE does not disclose all orders due to the sensitive nature of some defence contracts.) Despite that, STE trades at just 0.81x orderbook size, a discount to the 5-year average of 0.88x Grp’s guidance for higher revenue and earnings. reflects confidence in the delivery of its orderbook and this would lower the risk of any downward surprises. In addition, margins are likely to improve in the coming quarters as 1Q12 had several one-off expenses, such as airshow-related costs and a provision against a customer claim. As such, believe that there is scope for upward revision as consensus estimate just a 6.0 % yoy increase in net profit, even though 1Q12 earnings rose 21%. A strong 2Q would be a catalyst for upward revisions.