ST Engineering - UOB Kay Hian 2022-06-06: A Fine Balance Of Defence & Growth


ST Engineering - A Fine Balance Of Defence & Growth

  • Strategically integrated into the defence and security structure of Singapore and a leading player in several major growth areas (smart city, satcom, commercial aerospace), ST Engineering is a fine balance of defence and growth. Its medium-term growth outlook is underpinned by a record orderbook of S$21.3b.
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ST Engineering's Defence portfolio offers stability and growth.

  • As an anchor supplier to Singapore’s Ministry of Defence and an integrated solutions provider to a number of Singapore governmental agencies, ST Engineering (SGX:S63) is a strategic cornerstone of the country’s defence and security structure.
  • Having demonstrated good resilience during the pandemic, ST Engineering’s defence and public security portfolio is set to grow in tandem with Singapore’s defence spending and benefit from the growing demand of international customers amid a volatile global security climate and geopolitical landscape.

Commercial aerospace portfolio likely to recover fully by end-23.

  • We expect revenue of ST Engineering’s commercial aerospace segment − comprising mainly aerospace maintenance repair and overhaul (MRO), freighter conversion, nacelle original equipment manufacturing (OEM) businesses, etc − to recover to pre-pandemic levels by end-23. Promising signs include:
    1. the high utilisation of ST Engineering’s existing airframe MRO capacity,
    2. its slots for several freighter conversion programmes having been fully booked till 2024/25,
    3. Airbus ramping up aircraft production (benefitting ST Engineering’s nacelle OEM business), and
    4. ST Engineering investing in new freighter conversion and MRO capacities.

Geared to other fast-growth areas.

  • With a comprehensive suite of solutions addressing the connectivity, mobility, security, infrastructure and environmental needs of cities, ST Engineering is proactively pursuing growth in the global smart city market and is well poised to ride the rising demand.
  • In addition, as the world’s leading satcom ground segment technology provider, ST Engineering is at the forefront of the satcom sector’s revolution and is well-positioned to capture business opportunities unlocked by the Low Earth Orbit satellite technology.

Medium-term growth underpinned by record orderbook.

  • ST Engineering’s record orderbook of ST Engineering’s core net profit to grow 16.7% and 6.1% in 2023 and 2024 respectively, driven by revenue growth and margin improvement helped by operating leverage.

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Roy Chen CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-06-03
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