ST Engineering: UOBKH upgrades to Buy from Hold and maintains its $3.28 target. Says the stock's underperformance vs the STI is unwarranted. Says the market could be concerned that the defence budget could be reduced or about a potential damages payout for a purported breach of contract with Louis Dreyfus...
But notes Singapore's defence budget has grown at a 4.5% CAGR over the past 6 years and chances of a material decline are low. Adds, STE intends to dispute the breach of contract claim and has stated that its liability will be limited to 10% of the contract value, or $17.9m while the group has also indicated there will be no impact to NTA and EPS for 2011, "implying it will not be making a provision."...
Adds, at just 0.75X orderbook STE is trading at the lowest P/B level since 1Q09, while current 17.2X 2011F P/E is below the 10-year average of 18.7X. Shares rise 0.7% to $2.90.
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