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Brokers' take

This article is more than 12 months old

Compiled by Leila Lai

SEMBCORP INDUSTRIES | BUY (MAINTAINED)

JAN 15 CLOSE: $2.65
TARGET PRICE: $3.20

UOB Kay Hian Research, Jan 15

Sembcorp Energy India (SEIL) is expected to report a Q4 2018 plant load factor (PLF) of 51.6 per cent.

Sembcorp Gayatri Power (SGPL) is expected to report a Q4 2018 PLF of 82.6 per cent. Losses for Q4 2018, while expected, could be smaller than the $24 million losses reported in Q3 2018 due to international coal prices having fallen by 6 per cent quarter-on-quarter, IEX spot prices having risen by 20 per cent quarter-on-quarter, and PLFs being comparable on a quarterly basis.

With losses from SGPL potentially lower, core earnings from India could come in slightly above our current estimate for break-even.

Taking into account that international coal prices remain elevated, SGPL seems unlikely to be able to narrow its losses faster than we currently are expecting. We are thereby taking the opportunity to lower our 2019 and 2020 earnings by about 5 per cent to 6 per cent.

Our target price falls to $3.20 with our earnings revision. On a valuation basis, we maintain our "buy" rating.

ST ENGINEERING | BUY (MAINTAINED)

JAN 15 CLOSE: $3.61
TARGET PRICE: $3.97

RHB Research, Jan 15

Maintain "buy" and $3.97 target price, 11 per cent upside, with 4 per cent yield.

ST Engineering (STE) should see a revival of profit growth aided by increased capacity and capabilities in Aerospace, delivery of smart city-related contracts in and outside Singapore, and defence-related contracts.

In addition to continuing order wins for its aerospace and electronics businesses, the recent revival in Marine order wins and completion of Middle River Aircraft Systems (MRAS) acquisition could be key re-rating catalysts.

While aerospace and electronics have been registering steady order wins and relatively strong earnings growth over last few years, losses from shipbuilding business under marine have been a drag on earnings. However, recent order wins for marine should improve its earnings outlook.

STE should be able to complete the acquisition of MRAS by end-Q1 2019.

The acquisition, which will be fully funded by the USD denominated debt, could lift our 2019F-2020F earnings by 4 per cent to 5 per cent.

We have not factored the MRAS acquisition in our estimates yet.

We expect STE to deliver about 16 per cent earnings growth in 2019 (consensus: about 13.4 per cent).

While much of the growth is expected to be delivered by the aerospace and electronics businesses, we believe that improvement in marine profitability will also be a factor driving growth.

Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision.

The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.