ST Engineering

ST Engineering: Takeaways from Deutsche's SG/MY corporate day. STE’s balance sheet remains robust and it is still triple-A rated by Moody’s and S&P. The group is in a net cash position. Its order book as at 2Q14 stood at a record $13.4b, and has more than doubled since 2005, providing healthy visibility. In Aerospace, management highlighted that they remain well positioned to benefit from continued outsourcing in the industry. The 2Q14 weakness in Aerospace was due largely to its Component/ Engine Repair & Overhaul business whose PBT slid 37% yoy as it restructures operations in Europe. ST Electronics remains steady and the division sees opportunities for intelligent transportation solutions, increasing demand for Ka-band in satellite communications, cyber security solutions and data analytics. Land Systems will offer new and improved defence solutions, penetrate new markets and target upgrade opportunities for ageing platforms. 2Q14 weakness in Marine was due to design/specification issues relating to a few vessels in the US. To date, five of these vessels have been delivered and the remaining five should be delivered by 1Q15. Management believes the required costs have already been charged and the rest of its order book should not see similar problems. Deutsche reiterates Buy with TP $4.07.