ST Engineering - RHB Invest 2024-09-18: Rolling Forward Our Valuation; Reiterate BUY

• We roll forward our valuation to FY25F. Reiterate BUY on ST Engineering, new ST Engineering target price at S$5.32, 15% upside, and ~3.5% yield.
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• We see further earnings tailwind from the impending interest rate decline, as ~39% of its debt is exposed to floating interest rates.

Expect earnings growth momentum to continue.

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• We also expect higher aircraft engine nacelle deliveries. Airbus expects its A320 production rate to exceed the 45 aircraft per month deliveries achieved in 2023. With improving scale, we also expect ST Engineering’s passenger-to-freighter or PTF conversions to see better margins in 2H24.

While the USS numbers were below our expectations in 1H24, we maintain that ST Engineering’s focus on improving processes and optimising costs should boost EBIT.

We expect growth in the Defence & Public Security or DPS segment to sustain, as the group continues to deliver the orderbook.

Potential for lower interest costs.

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Shekhar Jaiswal RHB Securities Research | https://www.rhbgroup.com/ 2024-09-18 SGinvestors.io

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