Thursday, November 19, 2015


STE: A local broker upgraded ST Engineering to Buy from Hold yesterday, citing the recent selloff was overdone.

Recall, the stock had corrected 15.1%, from the intraday high of $3.38 on 29 Oct, to the intraday low of $2.87 yesterday, in part exacerbated by 3Q15 results that were sunk by the marine business, and a lower y/y pretax profit guidance.

Amid the tempered outlook, ST Engineering was hit by a slew of TP cuts and/or downgrades. Maybank-KE’s earnings forecast for STE was cut 12%/16%/11%, consequently lowering the TP to $3.60 from $3.85. The house nevertheless remains optimistic for a cyclical rebound in aircraft maintenance driving FY17 growth.

From a tactical standpoint, a near-term rebound might be looming. Stock price has entered oversold territories on both the RSI and Stochastics indicators. As such, short-term traders may want to look out for a reversal signals, characterised by the bottoming out of the MACD histogram, RSI exiting the oversold 30 reading, and a clear crossover for the Stochastics indicator.

From a sentiment perspective, its most recent rally in Oct came in tandem with 1) brokers advocating the stock, citing valuation and defensive qualities as early as late , and 2) a global recovery in sentiment from the global rout that started in Aug. As such, a positive sentiment in equities, coupled by more brokers highlighting attractive valuations in this correction cycle may be a stock price catalyst.

ST Engineering is currently trading at 17x trailing P/E, more than -1SD below its 5-year average of 19.6x. For now, the street has 6 Buys, 6 Holds and 1 Sell on STE with a mean TP of $3.32

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