ST Engineering - OCBC Investment 2020-05-11: Interrupted By COVID-19

SINGAPORE TECH ENGINEERING LTD (SGX:S63) | SGinvestors.io SINGAPORE TECH ENGINEERING LTD (SGX:S63)

ST Engineering - Interrupted By COVID-19

  • Aerospace to face weakness.
  • Other segments less impacted.
  • Defense-related work about a third of business.



Slightly less than half of net profit from aerospace last year

  • The COVID-19 outbreak has put immense pressure on the global aviation industry’s profitability and cash flows. As Aerospace accounted for about 47% of ST Engineering (SGX:S63)’s net profit last year, this would have a knock-on effect on the group. Within the aerospace business, maintenance, repair and overhaul (MRO) accounts for one-third of the business.
  • Significant downside pressure should be experienced in this segment as airlines defer maintenance schedules, and there would be idle fleet as well.
  • Recall that ST Engineering does not really service Singapore Airlines (SGX:C6L) as Singapore Airlines has its own MRO provider, which is SIA Engineering (SGX:S59). As for the manufacturing side of aerospace, a reduction in production targets by plane manufacturers would also have negative spill-over effects on ST Engineering’s MRAS.


Other segments not as impacted

  • As for ST Engineering’s other operations, Electronics accounted for 33% of FY19 net profit while Land Systems contributed 13%. The remaining 9% is from Marine. These segments are not really impacted though we note that there could be supply chain issues which may result in delays in production.
  • Also, about a third of ST Engineering’s business is defense-related, which is less likely to be impacted by COVID-19.


Risk of a dividend cut?






OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-05-11
SGX Stock Analyst Report BUY MAINTAIN BUY 3.90 DOWN 4.700



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