ST Engineering - OCBC Investment 2019-06-13: Positioning For The Future


ST Engineering - Positioning For The Future

  • Capitalising on air traffic growth.
  • Collaboration on digital and connectivity.
  • Positive long term prospects.

Positioning for growing air traffic in the region

  • ST ENGINEERING (SGX:S63) recently announced that its Aerospace arm and Vietnam Airlines Engineering Company (VAECO), a subsidiary of Vietnam Airlines Co Ltd, have incorporated a new joint venture company, Vietnam Singapore Technologies Engineering Aerospace Co. Ltd.
  • The JV will provide component Maintenance, Repair & Overhaul (MRO) solutions, and ST Engineering has a 49% stake in the JV. Existing maintenance facilities of Vietnam Airlines at Noi Bai International Airport in Hanoi and Tan Son Nhat International Airport in Ho Chi Minh City will be leveraged upon, and new infrastructure will be invested in to carry out component MRO work at these facilities. The new component MRO facilities are expected to begin operations in mid 2019.
  • See ST Engineering's announcements.

Collaborating on enhanced digital and connectivity solutions

  • In a separate announcement, ST Engineering also mentioned that it has entered into a partnership agreement with Nokia on key technology areas such as 5G and Internet of Things (IoT). The collaboration will allow both companies to cross sell their solutions and expand business offerings.
  • ST Engineering will resell Nokia’s internet protocol (IP), optical networking and wireless broadband solutions which include 5G, last-mile and analytics. Nokia will in turn incorporate ST Engineering’s Very Small Aperture Terminal (VSAT) and cybersecurity solutions in its global project offerings.

Bright long term prospects

  • YTD, ST Engineering share price is up 17.2% compared to the STI’s 4.5% rise, based on closing prices of 12 Jun.
  • ST Engineering has had a good start to the year in terms of contract wins, which have increased its order book to a high of S$14.1b as at end Mar. About S$4.2b of this is to be delivered in 9M19.
  • Potential catalysts going forward include the US Postal Service’s tender for next-gen electric trucks, as well as the exercising of options for two polar security cutters by the US Coast Guard. We expect further growth in order book over the longer term with better traction in Smart City solutions and export of defence solutions.
  • Meanwhile, we fine-tune our estimates and our fair value rises from S$4.22 to S$4.38.

Low Pei Han CFA OCBC Investment Research | https://www.iocbc.com/ 2019-06-13
SGX Stock Analyst Report BUY MAINTAIN BUY 4.38 UP 4.220