Brokers’ take: Analysts raise target price for ST Engineering on better profit outlook
Citi Research upgraded its call on the technology and engineering group to “neutral” from “sell”, while raising its target price to S$3.76 from S$3.35.
The company’s better profit margin in its core business segments was the main reason for the upgrade, said analyst James Osman.
Although the company may still be dragged down by near-term operational costs due to factors such as labour shortages and supply chain bottlenecks, Osman is positive that the company’s topline momentum has finally translated into improved operational leverages in its core businesses.
Expected earnings per share (EPS) for FY2023 was raised by 11 per cent to reflect the better margin, driving up the target price.
The analyst also increased forecasted EPS by 10 per cent for FY2024, and by 5 per cent for FY2025, as he expects the improvements in margins to be sustainable.
In addition, the company’s cost rationalisation of underperforming assets and use of capital recycling to manage gearing levels were cited as further indications of a “better risk-reward balance”.
A strong order backlog of S$27 billion contributed to the company’s revenue visibility for the next two years, although this factor has already been considered in previous ratings.
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