Singapore Company Guide ST Engineering

Version | Bloomberg : STE SP | Reuters: STEG.SI Refer to important disclosures at the end of this report

DBS Group Research . Equity 16 May 2016

BUY Orderbook remains robust Last Traded Price: S$3.08 (STISTISTISTI : 2,734.91) Maintain BUY; investment thesis intactintact.. ST Engineering remains Price Target : S$3.55 (15% upside) (Prev S$3.65) a defensive stock with a healthy balance sheet and secure dividend payouts amidst a volatile equity market. Its Aerospace Potential Catalyst: Smart city order wins, M&A segment has positioned itself well by investing in growth Where we differdiffer:::: Slightly more bearish on earnings estimates markets such as narrow-body aircraft Passenger-to-Freighter (PTF) conversions, the Chinese MRO market, and cabin interior Analyst Suvro SARKAR +65 6682 3720 [email protected] solutions, to name a few. The Electronics segment should also Singapore Research Team benefit from the ‘Smart City’ trend, which could open up a US$400-500bn market by 2020. What’s New 1Q1Q1Q161Q 16 core profits in line; orderbook healthy. Headline profits • 1Q16 core profits in line; headline PBT affected by before tax (PBT) for 1Q16 came in at S$130m, down 13% y-o- one-off items y and 22% q-o-q, but this was skewed by one-off items • Revenues boosted by Aerospace initiatives including fair value gains, Singapore Airshow expenses and provisions on US shipbuilding contracts, without which we • Orderbook of S$11.5bn remains healthy think the Group would have achieved a ~S$160-165m PBT.

Tweaking forecasts on EFW consolidation and nearnear----termterm Price Relative margin pressurespressures.... We adjust our revenues upward by 2% each S$ Relative Index in FY16 and FY17 mainly to account for the consolidation of

4.4 207 subsidiary EFW after ST Aerospace increased its stake to 55%. 187 Profits are revised down by 6%/4% in FY16/FY17 due to 3.9 167 margin pressures at the Marine segment (poor US shipbuilding 3.4 147

127 performance), Electronics segment (higher R&D and marketing 2.9 107 for new products) and Aerospace segment (as new businesses 2.4 87 May-12 May-13 May-14 May-15 May-16 ramp up operations).

ST Engineering (LHS) Relative STI INDEX (RHS) Valuation: Forecasts and Valuation Our TP is adjusted to S$3.55 following the cut in earnings. The FY Dec (((S$S$S$ m) 2014 AAA 2015 AAA 2016 FFF 2017 FFF TP is based on a blended valuation framework to factor in both Revenue 6,539 6,335 6,695 6,649 EBITDA 835 834 833 869 earnings growth and cash-generative nature of the business. Pre -tax Profit 651 630 612 644 Net Profit 532 529 505 531 Key Risks to Our View: Net Pft (Pre Ex.) 532 529 505 531 The structural changes facing the aircraft MRO industry could Net Pft Gth (Pre -ex) (%) (8.4) (0.5) (4.5) 5.0 EPS ( S cts ) 17.1 17.1 16.3 17.1 hit harder than expected, as newer airframe and engines EPS Pre Ex. ( S cts ) 17.1 17.1 16.3 17.1 reduce maintenance spend and lengthen the cycle for checks EPS Gth Pre Ex (%) (9) 0 (4) 5 and OEMs take a larger share of the aftermarket services. Also, Diluted EPS (S cts ) 17.1 17.1 16.3 17.1 Net DPS ( S cts ) 15.0 15.0 15.0 15.0 continued lack of action on the M&A front could lead to BV Per Share ( S cts ) 68.4 68.7 70.0 72.2 inefficient use of balance sheet and lower ROEs in the future. PE (X) 18.1 18.1 18.9 18.0 PE Pre Ex . (X) 18.1 18.1 18.9 18.0 At A Glance P/Cash Flow (X) 15.4 20.5 16.4 14.2 Issued Capital (m shrs) 3,105 EV/EBITDA (X) 11.0 11.6 11.7 11.2 Mkt. Cap (S$m/US$m) 9,563 / 6,970 Net Div Yield (%) 4.9 4.9 4.9 4.9 Major Shareholders (%) P/Book Value (X) 4.5 4.5 4.4 4.3 Net Debt/Equity (X) CASH 0.0 0.0 0.0 Temasek Holdings Pte Ltd (%) 51.3 RO AE (%) 25.0 24.8 23.5 24.1 Aberdeen Asset Management (%) 6.0 Capital Group (%) Earnings Rev (%): (6) (4) 5.0 Consensus EPS (S cts )::: 16.5 17.2 Free Float (%) 37.7 Other Broker Recs: B: 5 S: 1 H: 6 3m Avg. Daily Val (US$m) 8.2 Source of all data: Company, DBS Bank, Bloomberg Finance L.P ICB Industry : Industrials / Aerospace & Defense

ASIAN INSIGHTS VICKERS SECURITIES ed: TH / sa:YM Company Guide

ST Engineering

WHAT’S NEW up operations to peak levels. However, we believe these new Investment thesis intact businesses in cabin interiors and passenger-to-freighter conversions position the Aerospace segment to ride on 1Q16 core profits in lineline.... Headline profits before tax (PBT) growth trends in the region, and will drive profits in the for 1Q16 came in at S$130m, down 13% y-o-y and 22% q- medium term. o-q, and representing 20% of our full-year forecast. This was mainly due to: i) fair value losses of S$12.5m on the Group’s Land systems down but not outout.... The Land Systems segment financial instruments/hedges; ii) one-off expenses of S$9m saw revenues fall by 17% y-o-y to S$285m in 1Q16, as all on the Singapore Airshow; and iii) provisions taken at the three of its business groups recorded declines in revenues, Marine segment on shipbuilding projects. Otherwise, we mainly from project deliveries being shifted out. As a result, think core PBT of ~S$160-165m was roughly in line with our PBT for the segment fell by 28% y-o-y to S$11.5m. While estimates. Meanwhile, order wins YTD in 2016 totalling sales of road construction vehicles remain weak in Brazil and S$948m are in line with last year’s pace, and an S$11.5bn China, and should continue to weigh on profitability, the orderbook as of 31 March 2016 maintains revenue visibility. recently announced sale of its entire 60% stake in the underperforming Guizhou Jonyang Kinetics (GJK) business – Provisions drag Marine earnings downdown.... The Marine segment which mainly builds excavators in China – should help the saw its PBT plummet to S$3.3m in 1Q16, down 85% y-o-y Land Systems segment reduce margin pressure going from S$23.4m. This was primarily due to the shipbuilding forward. segment's net loss of S$11.4m for the quarter, as provisions were taken on its projects in the US. We do not expect such Strong toptop----lineline growth for ElectronicsElectronics.... Revenues for the substantial net losses to be recurring, although we cannot Electronics segment were up 28% y-o-y at S$464m, driven rule out additional provisions entirely since the US operations by strong sales at the Communications & Sensor Systems continue to suffer from design, vendor performance and business group, due to roll-out of new products. PBT grew scheduling issues. by 13.4% y–o-y to S$39.5m. The full revenue impact did not flow through due to high investments in R&D, marketing Aerospace segment is well positionedpositioned.... The Aerospace expenses for new products and other expenses such as segment’s PBT of S$75.2m was up by 5% y-o-y, on higher spending on the Singapore Airshow dampened. revenues (boosted by contribution from EFW, which became a subsidiary of ST Aerospace in January 2016 after ST Aerospace increased its interest in the company to 55%) and contributions from associates. However, PBT margins were

weaker, at 12.1% vs. 14.6% in 1Q15, reflecting the contribution from new subsidiaries which have yet to ramp

Quarterly / Interim Income Statement (S$m) FY Dec 1Q1Q1Q20151Q 2015 4Q4Q4Q20154Q 2015 1Q1Q1Q20161Q 2016 % chg yoy % chg qoq Revenue 1,511 1,779 1,627 7.7 (8.5) Cost of Goods Sold (1,219) (1,441) (1,335) 9.5 (7.3) Gross Profit 292 338 292 (0.1) (13.5) Other Oper. (Exp)/Inc (149) (185) (180) 20.8 (2.6) Operating Profit 143 153 112 (21.9) (26.7) Other Non Opg (Exp)/Inc 0.0 0.0 0.0 nm nm Associates & JV Inc 11.2 17.6 22.6 102.6 28.5 Net Interest (Exp)/Inc (4.0) (3.9) (4.2) (6.2) (9.7) Exceptional Gain/(Loss) 0.0 0.0 0.0 nm nm PrePrePre ---tax Profit 151 167 130 (13.4) (21.7) Tax (19.0) (23.4) (19.6) 3.1 (16.1) Minority Interest (1.5) (2.3) (0.6) (63.8) (76.7) Net Profit 130 141 110 (15.2) (21.7) Net profit bef Except. 130 141 110 (15.2) (21.7) EBITDA 199 221 190 (4.4) (13.7) Margins (%) Gross Margins 19.4 19.0 18.0 Opg Profit Margins 9.5 8.6 6.9 Net Profit Margins 8.6 7.9 6.8

Source of all data: Company, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES Page 2 Company Guide ST Engineering

Aerospace sales growth (%)

CRITICAL DATA POINTS TO WATCH 11.2 10.4 9.0 Earnings Drivers: 7.5 Conglomerate with diverse interests in defense and commercial 6.1 spheres. STE started out life as a defense contractor but has 4.7 4.1 leveraged its technical knowhow over the years to penetrate the 3.3 3 commercial market. It boasts multinational operations with a 1.9 1.4 0.5 global presence in 23 countries and 41 cities, and hires more -1.0 than 22,000 employees. The group has reduced its reliance on 2013A 2014A-0.9 2015A 2016F 2017F the defense sector over time from 57% of revenues in 2002 to Electronics sales growth (%) the current 36%, with another 33% from government agencies and the balance from commercial businesses. 7.96 7.72 6.75 6.90 5.28 STE's four key business divisions bring diversification benefits. Its 4.56 3.65 Aerospace, Electronics, Land Systems and Marine businesses 2.03 contributed 33%, 27%, 22% and 15% respectively to FY15 0.40 revenues, allowing the company to avoid reliance on any -1.22 particular sector. This has engendered relatively stable revenues -2.84 and earnings, weathering even crisis periods. -4.47 -4.06 2013A 2014A 2015A 2016F 2017F

Acquisitions have been a key driver, accounting for around Land Systems sales growth (%) 40% of revenue growth over the last decade. However, the dampening effect of a weakening US dollar and addition of lower-margin businesses meant earnings growth has not kept -0.82 up with top-line growth. Utilisation of its strong balance sheet -1.82 and steady cash flows to undertake acquisitions of high-ROE -2.82 -2.5 -2.5 assets could boost future earnings. -3.4 -3.82 Healthy order book drives visibility. As of 1Q16, the orderbook -4.82 -5.3 stood at S$11.5bn, down slightly from a level of S$11.7bn at -5.82 2013A 2014A 2015A 2016F 2017F end-FY15 but nonetheless providing healthy visibility on revenues over FY16/17 at a roughly 1.8x book-to-bill ratio.>> Marine sales growth (%)

22.5 22.4 Aerospace MRO primed for steady growth. Continued initiatives 19.6 16.8 13.9 by ST Aerospace to broaden its capabilities should propel its 11.1 8.3 8.3 5.4 2.3 growth in the longer term. These include a partnership with 2.6 -0.2 Airbus for passenger-to-freighter conversion of its A320 and -3.1 -5.9 -8.7 A321 jets, marking a diversification of its conversion portfolio; a -11.6 -14.4 continued expansion of its cabin interior service solutions -17.2 -20.1 -17.9 -22.9 business, particularly for VIP aircraft completions; and expansion -25.7 -28.6 of its aircraft leasing business. -31.4 -28.6 2013A 2014A 2015A 2016F 2017F

Electronics division’s initiatives should be a key long-long ---termterm growth driver. Within the Smart Nation framework, we estimate Source: Company, DBS Bank there will be projects worth more than S$1bn in the near future, as the Singaporean government pushes for smart technology usage across the utilities, healthcare, housing and transport spaces. The recently launched TeLEOS-1 satellite will be ready for providing imaging services by mid-2016 and herald a new space-centred growth channel for the division. We are also seeing increased importance placed on robotics, which could be another future key growth driver. >>

Balance Sheet:

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ST Engineering

Healthy balance sheet can drive M&A ambitions. STE has traditionally been in net cash position but ended FY15 in a Leverage & Asset Turnover (x) 0.9 0.70 minor gearing position due to channelling of cash into bonds 0.9 and share buybacks to improve returns of capital. Nevertheless, 0.60 0.9 0.8 balance sheet remains very strong and STE has ample 0.50 0.8 ammunition to pursue attractive acquisitions in growth areas. 0.40 0.8 0.30 0.8 Dividend payout should remain steady. Strong operating cash 0.8 0.20 flows provide support to healthy dividend yield levels of around 0.7 0.10 4.9% currently. STE has cut its payout ratio in recent years from 0.7 0.00 0.7 100% to around 80-90%, owing to cash locked up in overseas 2013A 2014A 2015A 2016F 2017F locations, which it prefers to invest for growth rather than pay Gross Debt to Equity (LHS) Asset Turnover (RHS) withholding taxes on repatriation. Capital Expenditure S$m Share Price Drivers: 300.0

Strong order wins. Total announced order wins in FY15 of 250.0

S$4bn were slightly lower than previous years, as a result of the 200.0 Land Systems and Marine divisions seeing some weak industry 150.0 trends, while the Aerospace and Electronics divisions have 100.0 announced steady order wins. Improvement of momentum in announced contract wins in 2016 could boost the share price. 50.0 0.0 2013A 2014A 2015A 2016F 2017F Recovery in the Marine sector. The Marine sector is arguably Capital Expenditure ( -) facing the strongest industry headwinds on the commercial front, with low offshore oil & gas spending and broad ROE (%) overcapacity in shipping. Cost overruns in the US exacerbate the situation. An industry recovery, as well as better productivity in 25.0% the US, would provide more confidence in the medium-term earnings of the business. 20.0%

15.0% Key Risks: Declining defense budgets in the West. Austerity programmes 10.0% in Europe and planned US spending cuts create the risk of 5.0% delays to some defense programmes that STE may be bidding 0.0% for. 2013A 2014A 2015A 2016F 2017F

Commercial vehicle businesses face headwinds. The growth of Forward PE Band (x) STE’s commercial vehicle operations in China has been affected (x) by weak demand and high inventory levels. Its Brazil operations 25.1 have also been affected by withdrawal of subsidies for +2sd: 24.3x 23.1 purchases of construction equipment. +1sd: 22.2x 21.1 Avg: 20.2x Protracted slowdown in shipbuildingshipbuilding. The traditional shipping 19.1 sector has been plagued by overcapacity for some time now, -1sd: 18.1x 17.1 while the slide in oil prices also affects demand for offshore -2sd: 16.1x vessels. Visibility on demand recovery is low at this point. 15.1 13.1 May-12 May-13 May-14 May-15 Company Background ST Engineering (STE) is an integrated engineering group in the PB Band (x) aerospace, electronics, land systems and marine sectors. The (x) company has over the years diversified its businesses and 7.5 geographies. 7.0 6.5 +2sd: 6.5x

6.0 +1sd: 5.89x 5.5 Avg: 5.27x 5.0 -1sd: 4.65x 4.5

4.0 -2sd: 4.04x

3.5 May-12 May-13 May-14 May-15

Source: Company, DBS Bank

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Key Assumptions FY Dec 20132013A AAA 20142014AAAA 20152015AAAA 20162016FFFF 20172017FFFF

Aerospace sales growth (%) 2.97 (0.9) 1.41 11.2 4.13 Electronics sales growth (%) 4.56 (4.1) 7.96 7.72 6.75 Land Systems sales growth (%) (2.5) (5.3) (0.1) (2.5) (7.4) Marine sales growth (%) 22.5 8.32 (28.6) 2.27 (17.9)

Segmental Breakdown FY Dec 2013 AAA 2014 AAA 2015 AAA 2016 FFF 2017 FFF

Revenues (S$m) Aerospace 2,079 2,061 2,090 2,325 2,421 Electronics 1,650 1,583 1,709 1,841 1,965 Land Systems 1,475 1,397 1,396 1,361 1,260 Marine 1,238 1,341 958 980 805 Others 191 157 182 189 199 Total 6,633 6,539 6,335 6,695 6,649 PBT (S$m) Aerospace 319 283 291 303 315 Electronics 170 184 191 196 214 Land Systems 112 56.2 65.0 61.8 60.9 Marine 146 123 88.3 50.8 52.8 Others (18.1) 4.70 (4.6) 0.0 0.0 Total 730 651 630 612 643 PBT Margins (%) Aerospace 15.4 13.7 13.9 13.1 13.0 Electronics 10.3 11.6 11.2 10.6 10.9 Land Systems 7.6 4.0 4.7 4.5 4.8 Marine 11.8 9.2 9.2 5.2 6.6 Others (9.5) 3.0 (2.5) 0.0 0.0 Total 11.0 10.0 9.99.99.9 9.19.19.1 9.79.79.7

Income Statement (S$m) FY Dec 20132013A AAA 20142014AAAA 20152015AAAA 20162016FFFF 20172017FFFF

Revenue 6,633 6,539 6,335 6,695 6,649 Cost of Goods Sold (5,201) (5,221) (5,053) (5,356) (5,306) Gross Profit 1,432 1,319 1,282 1,339 1,343 Other Opng (Exp)/Inc (712) (711) (694) (756) (730) Operating Profit 720 608 588 583 613 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 31.1 57.2 58.3 59.5 60.7 Net Interest (Exp)/Inc (20.9) (14.3) (16.3) (30.4) (31.1) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 PrePrePre ---tax Profit 730 651 630 612 644 Tax (138) (114) (98.7) (104) (109) Minority Interest (10.7) (5.0) (2.6) (2.5) (2.6) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 581 532 529 505 531 Net Profit before Except. 581 532 529 505 531 EBITDA 893 835 834 833 869 Growth Revenue Gth (%) 4.0 (1.4) (3.1) 5.7 (0.7) EBITDA Gth (%) 1.9 (6.4) (0.2) (0.1) 4.3 Opg Profit Gth (%) 1.9 (15.5) (3.2) (0.9) 5.2 Net Profit Gth (Pre-ex) (%) 0.8 (8.4) (0.5) (4.5) 5.0 Margins & Ratio Gross Margins (%) 21.6 20.2 20.2 20.0 20.2 Opg Profit Margin (%) 10.8 9.3 9.3 8.7 9.2 Net Profit Margin (%) 8.8 8.1 8.4 7.5 8.0 ROAE (%) 29.0 25.0 24.8 23.5 24.1 ROA (%) 6.9 6.2 6.4 6.1 6.3 ROCE (%) 12.4 10.3 10.7 10.5 10.9 Div Payout Ratio (%) 80.2 87.9 87.9 92.1 87.6 Net Interest Cover (x) 34.4 42.7 36.2 19.2 19.7 Source: Company, DBS Bank

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ST Engineering

Quarterly / Interim Income Statement (S$m) FY Dec 1Q1Q1Q2015 1Q 2015 2Q2Q2Q20152Q 2015 3Q3Q3Q20153Q 2015 4Q4Q4Q20154Q 2015 1Q1Q1Q20161Q 2016

Revenue 1,511 1,545 1,500 1,779 1,627 Cost of Goods Sold (1,219) (1,212) (1,181) (1,441) (1,335) Gross Profit 292 333 319 338 292 Other Oper. (Exp)/Inc (149) (185) (175) (185) (180) Operating Profit 143 148 144 153 112 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 11.2 14.2 15.4 17.6 22.6 Net Interest (Exp)/Inc (4.0) (3.9) (4.6) (3.9) (4.2) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 PrePrePre ---tax Profit 151 159 155 167 130 Tax (19.0) (34.0) (22.3) (23.4) (19.6) Minority Interest (1.5) 0.44 0.81 (2.3) (0.6) Net Profit 130 125 133 141 110 Net profit bef Except. 130 125 133 141 110 EBITDA 199 208 207 221 190

Growth Revenue Gth (%) (18.2) 2.2 (2.9) 18.6 (8.5) EBITDA Gth (%) (2.1) 4.5 (0.6) 6.7 (13.7) Opg Profit Gth (%) (8.0) 3.3 (2.8) 6.2 (26.7) Net Profit Gth (Pre-ex) (%) (7.3) (3.8) 6.6 5.7 (21.7) Margins Gross Margins (%) 19.4 21.5 21.3 19.0 18.0 Opg Profit Margins (%) 9.5 9.6 9.6 8.6 6.9 Net Profit Margins (%) 8.6 8.1 8.9 7.9 6.8

Balance Sheet (S$m) FY Dec 2013 AAA 2014 AAA 2015 AAA 2016 FFF 2017 FFF

Net Fixed Assets 1,520 1,578 1,709 1,718 1,724 Invts in Associates & JVs 462 478 462 491 522 Other LT Assets 963 937 1,208 1,208 1,208 Cash & ST Invts 2,065 1,590 1,134 1,082 1,121 Inventory 1,808 1,802 1,943 2,054 2,039 Debtors 1,222 1,319 1,320 1,395 1,385 Other Current Assets 667 615 394 394 394 Total Assets 8,707 8,319 8,169 8,341 8,393

ST Debt 434 74.7 130 130 130 Creditor 1,605 1,667 1,703 1,799 1,787 Other Current Liab 2,055 1,974 1,888 1,920 1,916 LT Debt 939 944 1,019 1,019 1,019 Other LT Liabilities 1,414 1,395 1,170 1,170 1,170 Shareholder’s Equity 2,116 2,132 2,132 2,172 2,238 Minority Interests 144 132 129 131 134 Total Cap. & Liab. 8,707 8,319 8,169 8,341 8,393

Non-Cash Wkg. Capital 37.3 94.8 66.4 123 116 Net Cash/(Debt) 692 571 (13.7) (66.2) (27.3) Debtors Turn (avg days) 65.5 70.9 76.0 74.0 76.3 Creditors Turn (avg days) 119.0 118.2 126.4 123.7 128.0 Inventory Turn (avg days) 134.5 130.4 140.5 141.2 146.1 Asset Turnover (x) 0.8 0.8 0.8 0.8 0.8 Negligible net gearing Current Ratio (x) 1.4 1.4 1.3 1.3 1.3 forecasted Quick Ratio (x) 0.8 0.8 0.7 0.6 0.7 Net Debt/Equity (X) CASH CASH 0.0 0.0 0.0 Net Debt/Equity ex MI (X) CASH CASH 0.0 0.0 0.0 Capex to Debt (%) 20.5 22.0 23.8 17.4 17.4 Z-Score (X) 2.3 2.3 2.3 2.3 2.4

Source: Company, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES Page 6 Company Guide ST Engineering

Cash Flow Statement (S$m) FY Dec 20132013A AAA 20142014AAAA 20152015AAAA 20162016FFFF 20172017FFFF

Pre-Tax Profit 730 651 630 612 643 Dep. & Amort. 142 171 187 191 194 Tax Paid (110) (133) (111) (104) (109) Assoc. & JV Inc/(loss) (31.1) (57.2) (58.3) (59.5) (60.7) Chg in Wkg.Cap. 154 (72.2) (227) (56.4) 7.19 Other Operating CF 44.8 65.3 44.6 0.0 0.0 Net Operating CF 930 624 465 583 674 Capital Exp.(net) (282) (224) (273) (200) (200) Other Invts.(net) 70.8 79.0 (264) 0.0 0.0 Invts in Assoc. & JV (19.3) 5.67 0.27 (5.0) (5.0) Div from Assoc & JV 39.6 35.0 51.4 35.0 35.0 Other Investing CF (67.1) (53.4) 7.98 0.0 0.0 Net Investing CF (258) (157) (477) (170) (170) Div Paid (521) (499) (498) (465) (465) Chg in Gross Debt 28.2 (394) 109 0.0 0.0 Capital Issues 52.2 10.7 (75.9) 0.0 0.0 Other Financing CF (30.9) (43.8) (55.1) 0.0 0.0 Net Financing CF (472) (926) (520) (465) (465) Currency Adjustments 17.7 (0.3) 12.6 0.0 0.0 Chg in Cash 218 (459) (519) (52.5) 38.9 Opg CFPS (S cts) 25.0 22.3 22.3 20.6 21.5 Free CFPS (S cts) 20.9 12.8 6.20 12.3 15.3 Source: Company, DBS Bank

Target Price & Ratings History

3.75 S$S$S$ Closing Target S.No. Date Rating Price Price 3.55 1: 14 May 15 3.59 3.80 BUY 1 2: 10 Aug 15 3.26 3.80 BUY 3: 17 Aug 15 3.17 3.80 BUY 3.35 2 10 4: 31 Aug 15 3.07 3.40 BUY 56 5: 04 Nov 15 3.30 3.60 BUY 3.15 4 6: 09 Nov 15 3.15 3.60 BUY 3 7: 17 Dec 15 2.96 3.60 BUY 8: 26 Feb 16 2.85 3.40 BUY 2.95 8 7 9 9: 29 Feb 16 2.99 3.40 BUY 10: 08 Apr 16 3.23 3.65 BUY 2.75

2.55 May-15 Sep-15 Jan-16 May-16 Note : Share price and Target price are adjusted for corporate actions.

Source: DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES Page 7 Company Guide

ST Engineering

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends

GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank LtdLtd.. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.

ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 14 May 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).

ASIAN INSIGHTS VICKERS SECURITIES Page 8 Company Guide ST Engineering

COMPANYCOMPANY----SPECIFICSPECIFIC / REGULATORY DISCLOSURES 1.1.1. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a proprietary position in ST Engineering recommended in this report as of 30 Apr 2016 2.2.2. DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3.3.3. CoCoCompensationCo mpensation for investment banking services:

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report .

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

United Kingdom This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

Dubai This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3 rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

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ST Engineering

United States This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictiojurisdictionsnsnsns In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Bank Ltd 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 Company Regn. No. 196800306E

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