OCBC Investment Research has lowered its target price on Singapore Technologies Engineering (STEG.SI), the world’s largest aircraft maintenance firm, to $3.57 from $3.71 but maintained its buy rating.

OCBC cut its target price on ST Engineering to account for a potential margin squeeze in 2011.

ST Engineering said on Wednesday its first quarter net profit rose 20% from a year ago to $111.1 million, but slightly below OCBC’s expectations due to a margin squeeze on the firm’s product mix.

Most divisions, except aerospace, registered lower profit margins compared to the year-ago quarter, although overall profit before tax margins were comparable, OCBC said.

ST Engineering has an order book of $11.3 billion with a further $3 billion expected over the next nine months, OCBC said, adding that the management’s expectations of higher revenue and profits before tax in 2011 suggests profitability will pick up in the second half of the year.

At midday, ST Engineering shares were unchanged at $3.08 on a volume of 803,000 shares. The stock has fallen about 10% so far this year. – Reuters