ST Engineering has set high single-digit top line and low-to-mid teen bottom line growth targets for the next five years.
We raise our DCF-based ST Engineering's target price to S$7.1 on higher operating cash flows and lower WACC. Retain BUY on earnings visibility, steady execution and favourable thematic.
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Investor Day Takeaways
Defense, digital businesses and smart city projects will anchor growth. Efficiency improvement will lead to improved bottom lines.
From 2026 onwards, ST Engineering will pay out a third of earnings growth as incremental dividends. Surplus cash will be reinvested or used to enhance balance sheet flexibility.
High single-digit revenue growth
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Individual business segments of CA, DPS and USS are expected to grow at ~ 6%, 9% and 12%, respectively.
Digital business, spanning across DPS and USS, is expected to grow the fastest at 17% albeit from a low base. The growth drivers are broadly unchanged with focus on growing international market share and capturing synergies by cross-selling and implementing reusable/dual-use technology modules esp. for smart city projects.
The above targets imply broad-based growth normalisation though M&As helped in prior years.
Focus on productivity, capital efficiency
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Above is an excerpt from a report by Maybank Research. Clients of Maybank Securities may be the first to access the full PDF report @ https://www.maybanktrade.com.sg/.
