ST Engineering

ST Engineering: CIMB maintains O/p with $4.70 TP. House see a buying opportunity from the recent pullback of STE’s share price. Business fundamentals remain strong but see STE benefiting from the strengthening of the US$ with positive translation of earnings. Dividend yield has also become more attractive at 4.8%. Given expected earnings growth of 10% for FY13, house view the current valuation of 17.5x as unjustified as it is below its pre-GFC range of 20-22x (with steady earnings growth of 11%). Key catalysts include sustained US$ strength and stronger margins from aerospace. House advises investors to accumulate on recent weakness. With steady earnings growth of 7-10% and strong balance sheet (net cash of $740m), STE delivered the fastest bounce back in share price in any sell-down. The orderbook of $12.8bn should also provide some certainty in earnings visibility.