ST Engineering

ST Engineering: Deutsche has Buy Call with $3.95 TP. Note that global airline traffic and capacity growth started off strong in 2011, with Jan 11 traffic +8.2% YoY. While Jan's numbers do not factor in airlines' reponse to the spike in oil prices seen in Feb, note that capacity growth seen in the mth was the highest since Feb08 and up from 8.2% growth in Dec 10 despite increasingly difficult comps….

Importantly, developed markets contributed to strong overall growth, with North America reporting a 10% YoY increase in capacity and Europe capacity +8.8%. Airlines appear to be reacting to accelerating and sustained traffic, with Jan overall capacity growth outstripping traffic growth for only the second time since Aug08. Aside from the strength in North America & Euope, emerging markets growth was also strong, with average capacity growth of 11.1% YoY on traffic growth of 10.7%......

STE has guided for 2011 pre-tax income growth in its Aerospace division (40% of grp earnings). Add that prospects in this business appear healthy following global airline capacity additions. However, there should be some lag before vol rise for the grp and mgt is hoping for this to materialize frm 2H11. Asia Pacific, China, and India are expected to be the fastest growing regions for the aviation sector.