ST Engineering: DB remains upbeat on the group after its recent visit to ST Electronics found that the subsidiary is well positioned to capitalise on rapidly growing needs from urbanisation, a significant global trend.
ST Electronics accounted for 25% of ST Engineering’s sales and 29% of net profit in FY14, as well as delivered a net profit CAGR of 14% over the past seven years.
The house highlighted that the subsidiary offers technologically advanced products and solutions in the space of satellite & broadband communications, transportation intelligence and advanced electronics, which involves cyber security, data centre & analytic and cloud services.
As UN reported 54% of the world’s population resided in urban areas in 2014 and it should rise to 66% by 2050, ST Electronics is poised to benefit from rising IT solution needs to address urbanisation issues such as higher congestion, wastage and security concerns.The sub-entity will also be able to leverage on the group's global network to capture these opportunities.
Despite its optimism for the subsidiary, the broker suggested that possible downside risks for the group may arise from project execution, USD depreciation and worse than expected aircraft grounding.
However, the group has positive free cash flow, a robust balance sheet and a net cash position to withstand any contingencies. ST Engineering currently trades at 17.7x FY15E P/E.
Overall, DB maintains a Buy rating with a TP of $3.80 on the counter.
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