Excerpts from analyst's report
Deutsche Bank analyst: Kevin Chong
Riding the urbanisation global megatrend; site visit takeaways
|Visit to ST Electronics
We believe ST Electronics has laid the ground well for steady long term growth and appears ready to tap the rapidly growing needs from urbanisation, a global mega-trend. ST Elec accounted for 25% of ST Engineering’s sales in FY14 and 29% of net profit.
It has delivered a net profit CAGR of 14% over the past seven years and its customers include a wide range of well recognized names around the world (>100 countries/cities) in government and large enterprises. Group valuations appear attractive in our view; maintain Buy.
Extensive suite of solutions developed over >40 years
In its Satellite & Broadband Communications business, VT iDirect is the world’s largest enterprise VSAT Systems manufacturer with 32% global market share and its Satcom hub market share is at 57%. This business continues to innovate with the development of new technology for its next generation of products. Its Transportation business is a global provider of intelligent road transportation solutions with projects in >20 cities and is the only company in Asia with a full suite of intelligent rail solutions.
It has set up 12 rail command & control centres and installed thousands of platform screen doors/automatic fare collection units. ST Elec’s Advanced Electronics business has developed comprehensive solutions over the years in cyber defence, secure data centres, emergency response systems, smart utilities, analytics and cloud services.
Riding the urbanization global mega-trend
We believe ST Elec is well positioned to benefit from rising IT solution needs as countries urbanise. According to the UN, 54% of the world’s population resided in urban areas in 2014 and it should rise to 66% by 2050. Along with urbanization, comes congestion, more waste, less security, and more diseases, amongst others.
|"Robust balance sheet, healthy cash flows
STE’s balance sheet remains robust, it is in a net cash position, and FCF is positive. Our DDM-based target price is S$3.80 (RFR: 2.9%, RP: 4.5%, COE: 7.0%). Downside risks relate to project execution, US$ depreciation and worsethan-expected aircraft grounding." -- Kevin Chong
ST Elec is excited about prospects with its suite of capabilities addressing these issues, which include technology addressing public safety and security, sustainability, and efficiency.
Frost & Sullivan expects the global smart city market to be worth more than US$1.5 trillion in 2020. In Singapore, the group is a leader, having won seven projects in the Jurong Lake district, which is a test bed for the Smart Nation initiative (next best competitor won two projects). Opportunities are significant outside of Singapore in light of its global network and growing capabilities in smart solutions.