Singapore Technologies Engineering Ltd is a Singapore-based global technology, defense and engineering company. The Company's segments include Commercial Aerospace (CA), Urban Solutions & Satcom (USS), and Defence & Public Security (DPS). The CA segment includes airframe, engines and components maintenance, repair and overhaul, original equipment manufacturer (OEM) for nacelles, composite floorboard and passenger-to-freighter conversions and aviation asset management. The USS segment is engaged in smart mobility, smart utilities and infrastructure, urban environment solutions and satcom. The DPS segment is engaged in defense, public safety and security, critical information infrastructure solutions and others. The Company serves across Asia, Europe, the Middle East and the United States with customers in more than 100 countries. It owns TransCore, which provides technical solutions and engineering services for applications encompassing electronic toll collection.
Investment Overview
STE remains on top of crucial digitalisation, urbanisation, sustainability, and security needs globally. With continued investments in R&D and strategic acquisitions, key focus areas will be on 1) the strong ramp-up in OEM business consisting of Airbus Passenger to Freighter (P2F) conversions and nacelle production; 2) continued traction in the smart city space – smart mobility, smart environment and smart security; 3) expansion in digital businesses including cloud, AI analytics, and cybersecurity; and 4) international defence contract wins, among others.
Record order backlog underpins earnings visibility; double-digit earnings CAGR projected over the medium term. STE’s order backlog remains robust at SGD26.9bn as of Sep-24 on healthy new order wins of SGD8.3bn in 9MFY24, with an average book-to-bill ratio of 1.4x over the past eleven quarters. We expect the group’s core net earnings to grow at an impressive 15-20% CAGR between FY24-26F. This growth is expected to be driven by TransCore and organic expansion across all business segments, along with strengthening operating margins as STE benefits from better pricing and increased operational leverage as well as portfolio high grading, optimisation, and lower cost of funds from FY25F.
No longer just a defensive play, but also a compelling growth story. Historically perceived as a defensive stalwart with stable dividends and limited growth, STE has transformed its narrative post-2018. The group has not only pursued strategic M&A to enhance and diversify its offerings but has also intensified organic investments into future growth areas. We believe these proactive steps have positioned STE to achieve mid- to high-single-digit revenue growth in the long haul.
Maintain BUY with higher TP of SGD5.40. While STE’s share price has done fairly well in 2024 YTD, valuations remain undemanding given its sound fundamentals and we see continued execution on its growth story catalysing a re-rating in the near-term.
Risks
1) Weaker-than-expected economic growth scenario in US and Europe, 2) continued cost pressures in its commercial aerospace segment could impede margin expansion, and 3) turnaround in its satcom business could take longer than expected.
Topic
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