ST ENGINEERING

Brokers: DBS Group Research

Call: Buy

Target Price: $3.55

ST Engineering remains a defensive stock with a healthy balance sheet and secure dividend payouts amid a volatile equity market. Its aerospace segment has positioned itself well by investing in growth markets such as narrow-body aircraft, passenger-to-freighter conversions, the Chinese maintainence, repair and overhaul market, and cabin interior solutions.

The electronics segment should also benefit from the Smart City trend, which could open up a US$400 billion - US$500 billion (S$553 billion - S$691 billion) market by 2020.

The first-quarter profits are in line. Headline profits before tax for the quarter came in at $130 million, down 13 per cent year on year, but this was skewed by one-off items including fair value gains and Singapore Airshow expenses.

Revenues are adjusted up 2 per cent in 2016 and 2017.

SATS

Broker: MayBank Kim Eng

Call: Sell

Target Price: $3.86

Sats will announce its fourth-quarter results for 2016 today and the core net profit is expected to be $64.2 million. Sats Japan unit, TFK Corp, is expected to report a positive set of results on incremental contribution from its contract with Delta, and a stronger Japanese yen.

Better performance is also expected from its Singapore operations on higher workload from the return of Jetstar, and should also book a $9 million exceptional gain from the sale of a property.

While Sats is well-placed to benefit from improving air-traffic trends at Changi Airport, the pace of earnings' growth will slow to 3 per cent - 4 per cent in financial year 2017-2018.

A repeat this year of a strong margin of expansion from deconsolidating its low-margin food distribution business to its joint venture with BRF is doubtful.

Sats' share price outperformed the market and its sector peers over the past year, which calls for a reality check on valuations.