How ST Engineering could benefit from stronger US dollar

It derives 30% of its revenue from the US.

According to CIMB, it sees a buying opportunity from the recent pullback of STE’s share price. Business fundamentals remain strong but we see STE benefiting from the strengthening of the US$ with positive translation of earnings. Dividend yield has also become more attractive at 4.8%.

Here's more:

STE derives about 30% of its revenue from the US (mostly from Aerospace and Marine). We expect STE to benefit from US$ strength in FY13.

While Singapore's economic growth is expected to grow moderately faster in 2H13 than in 1H13, helped by better global growth (in the US, China and even Europe), the sharp fall in Asia ex-Japan currencies due to worries over a repeat of the1997-98 Asian financial crisis, and US Fed QE tapering expectations may see the S$ staying soft in the coming months.

Our house view expects S$/US$ easing to 1.29 by end-2013. In terms of sensitivity, for every S$0.01 movement in theS$/US$ rate, STE’s revenue is affected by about S$20m and PBT by S$3m.

Assuming 80% of its revenue is unhedged and exposed to translation difference, we estimate the potential earnings impact from Jul-Aug would have been S$5m or 1% to group earnings.