ST Engineering

ST Engineering: CLSA highlights STE’s sharp contracts pickup over the last 2 quarters across segments, and believes this will help STE deliver strong earnings growth over the next 2 years. ST Aerospace won $780m worth of new contracts in 4Q13 (+73% y/y) driven mainly by PTF conversion and cabin reconfiguration contracts. With 3-4% overall growth in MRO market expected over the next 2 years, stronger growth in Asia Pac, coupled with strong demand for cabin reconfiguration and VIP interiors will allow ST Aerospace to boost annual revenues growth to 6% over 2013-15 Similarly, electronics and marine segment also reported a jump in new contract wins to $593 (+43% q/q) and $866m (>100%). Electronics segment also continues to see strong demand across all sub-segments and we expect S$1.2-14bn in new order wins for 2014, while marine segment’s 2014 growth will be driven by contribution from new repair facility at Halter Marine, strong demand for Jones Act vessels in US as well as OSV’s in Asia. Drivers for the stock are cyclical growth in Aerospace and Marine, coupled with a strong balance sheet, diversified earnings base coupled with a secure and growing dividend (4.9% yield) CLSA upgrades STE to a Buy from O/PF with TP $4.60.