STEng – Phillip

Contract wins till date

• Total value of announced contracts till date had surpassed that of entire FY2009. Contract value announced till date stands at S$2.27bn.

• ST Aerospace’s Maintenance-By-the-Hour (MBH™) contracts will benefit from increased utilization by its airline customers. Hence, the capacity additions by global airlines and freighters are reflective of increases to Aerospace revenue in 6 to 12months. Being the largest revenue and profit contributor to STE, a rebound for the global aerospace industry is positive for the group.

• We estimate that the MBH™ contracts won by ST Aerospace from Jet Airways, Spring Airlines & T’Way Air in 2010 will add approximately S$130mn to the yearly sales of its commercial aircraft business.

• Under the current low interest rate environment, we believe that STE offers healthy earnings yield at the current price. We expect a 12M-Fwd earnings yield of 5%, which is a 3% premium over 10yr Bond Yield on Singapore Government Securities of approximately 2% (above the 5yr average earnings yield premium of 2.48%). Hence, we maintain our BUY call with a revised target price of S$3.69 based on our FCFE-model (COE: 8.3%, Terminal G= 3.5%).

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