ST Engineering - RHB Invest 2022-05-17: Defensive Amidst An Uncertain Economic Outlook

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SINGAPORE TECH ENGINEERING LTD (SGX:S63)

ST Engineering - Defensive Amidst An Uncertain Economic Outlook

• In its 1Q22 update, ST Engineering (SGX:S63) reported in-line revenue of S$2bn, with all segments booking y-o-y growth. It still reported strong order wins, with S$2.4bn in new contracts during the quarter – which took total orders to an all-time high of S$21.3bn.
• ST Engineering announced a quarterly dividend of S$0.04.
• We remain upbeat on it delivering defensive growth, aided by a gradual revival in the aerospace business.
• Key catalysts: Sustained strong contract wins, the commercial aerospace business recovery, and higher margins.
• Maintain BUY rating on ST Engineering with S$4.80 target price, 21% upside with ~4% yield.

All segments reported revenue growth.

• In 1Q22, ST Engineering's
  • Commercial Aerospace (CA) revenue rose to S$674m (+22% y-o-y, at 26% of our 2022 estimate), while
  • Urban Solutions & Satcom (USS) revenue increased by 12% y-o-y to S$297m (23% of our 2022 estimate), and
  • Defence & Public Security (D&PS) revenue rose to S$1,062m (+9% y-o-y, at 25% of our 2022 estimate).

Commercial Aerospace (CA) outlook continues to improve.

• Its airframe maintenance, repair and overhaul (MRO) business has seen an almost full recovery (80% capacity utilisation in 3Q21), while the engines and component MRO is operating at 80% capacity (70% in 3Q21).
• Demand for passenger-to-freighter (P2F) services remains strong – with A330P2F conversion slots booked until 2026 and A320/A321P2F conversion slots booked until 2025. Increasing the scale of operations should boost its P2F profitability, as ST Engineering will double its P2F aircraft induction this year. Nacelle production is expected to ramp up for the rest of 2022.

Strong order win momentum.

• ST Engineering reported S$2.4bn worth of ST Engineering expects S$5.8bn of the orderbook to be realised as revenue in the last nine months of 2022 (94% of our revenue estimate).

Working to keep costs in check.

• ST Engineering issued US$1bn bonds (US$700m due in 2027, US$300m due in 2032) and has managed value of S$4.45.
• See
  • ST Engineering's Share Price,
  • ST Engineering's Target Price,
  • ST Engineering's Analyst Reports,
  • ST Engineering's Dividend History,
  • ST Engineering's Announcements,
  • ST Engineering's Latest News.

Shekhar Jaiswal RHB Securities Research | https://www.rhbinvest.com.sg/ 2022-05-17

SGX Stock Analyst Report BUY MAINTAIN BUY 4.800 UP 4.400