ST Engineering

UOBKayhian on 28 Feb 2014


FY14F PE (x): 19.5
FY15F PE (x): 18.9

In line with consensus but surprises with a cut in dividend. Despite a lower guidance for full-year earnings in 3Q12, ST Engineering (STE) showed record revenue in 4Q13 with broad-based growth across all four segments. Orderbook for 2013 was at a record S$13.2b, of which S$4.3b (2013: S$44.3b) would be delivered in 2014. STE declared a final dividend of 12 S cents vs 13.8 S cents in 2013, translating into a payout of 79.4%, vs 89.3 previously. Upgrade to HOLD. While STE has been traditionally viewed as a dividend stock, its lowered payout now holds the prospect for additional growth. Given the change in dividend policy, we now move from a DDM-based valuation to a PE-based valuation. We value STE at +1SD to long term mean or 20.6x 2014F earnings and derive a fair value of S$4.03. At our fair value, STE will trading at just 0.95x orderbook, below mean P/orderbook of 1.22x.