ST Engineering - RHB Invest 2023-05-09: Strong Long-Term Earnings Growth; Keep BUY

• ST Engineering is guiding for a low 3% weighted average cost of borrowing in 2023, slightly higher than our estimate. An increase in our interest cost estimate lowers forecast earnings by 2%.
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• Keep BUY rating for ST Engineering, with new S$4.05 target price from S$4.10, 11% upside from the current ST Engineering's share price and ~4% yield.

Reiterate our investment thesis for ST Engineering

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• the urban solutions & satcom (USS) segment experiencing strong growth amid contributions from the TransCore acquisition beyond 2023; and
• the defence public security (DPS) segment benefiting from rising defence spending in Singapore and in the US.
• Concerns about its high levels of debt should also be allayed by ST Engineering's capacity to produce a significant free cash flow. During 2023-2025, we anticipate a gradual drop in the net debt to equity ratio.
• We think that Moody's recent reinforcement of its AAA issuer rating – the highest rating level offered by the credit rating agency – should allay investor worries about ST Engineering's elevated debt levels.

Small tweak to earnings; 2023F profit is below consensus.

• Read more at SGinvestors.io.

Shekhar Jaiswal RHB Securities Research | https://www.rhbgroup.com/ 2023-05-09 SGinvestors.io

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