Investors too bearish on ST Engineering: analysts

It expects $1.2b of orders in 4Q15.

The outlook on ST Engineering (STE)’s prospects in the marine and aerospace sectors may be unnecessarily gloomy, according to a report by OCBC.

STE’s orderbook was at $12.2b as of the end-September 2015, and while it expects to deliver less than $1.4b in 4Q15, it has also snapped up about $1.2b of new orders in that quarter. These include $344m of marine orders, $435m of electronic orders, and $415m of aerospace orders.

Moreover, STE, being a “yield” play, also felt the blow from rising interest rate concerns, but the expectation of further hikes in US interest rates has moderated. OCBC notes that the 10-year SG bond yield is now lower post the Fed hike in December than before the hike. Assuming that STE doles out $0.14 per share dividend this year, the forecast yield sits at 4.9%

STE’s share price has also corrected by around 23% from the 2015 peak of $3.70 which has led to a significant drop in its valuations. Based on Bloomburg’s consensus EPS, STE is currently trading around 16x PER. It is also almost 1.5 standard deviations (SD) below the 5-year average—the last time STE was trading at 2 SD velow the 5-year mean was in 2011.

STE has also resumed buying back shares. Between 11 January 2016 and 20 November 2015, it has bought back nearly 3m shares at an average of $2.90, bringing the total shares bought to 11.7m.

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