RHB Bank Singapore analyst Shekhar Jaiswal has kept his “buy” call and target price of $4.50 unchanged on Singapore Technologies Engineering S63 (ST Engineering), following the company’s recent order wins and positive updates.
In June, the company secured contracts worth over $100 million for its defence and public security (DPS) segment.
The contracts are for North Atlantic Treaty Organisation (NATO) standard 155 millimetre (mm) ammunition orders for new European customers, while the company also received orders for 40 mm ammunition from European customers.
Jaiswal writes in his June 24 report: “These wins were a result of competitive tenders and mark a pivotal expansion of ST Engineering’s footprint in the ammunition segment.”
Meanwhile, earlier in the month, the company’s commercial aviation segment (CA) broke ground for its third aircraft maintenance hangar at the Pensacola International Airport in Florida, US.
The new 167,000 square feet (sq ft) maintenance, repair and overhaul (MRO) hangar will contribute an additional 500,000 man hours annually from 2HFY2026.
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On ST Engineering’s urban Solutions and SATCOM segment (USS), its US-based TransCore business announced its selection by the Missouri Department of Transportation (MoDOT) to deploy its TransSuite Advanced Traffic Management System (ATMS) in the St. Louis and Springfield traffic management centres (TMCs).
These major metropolitan areas add to the existing TransSuite ATMS deployment in the Kansas City region.
Overall, ST Engineering reported $3 billion in order wins for the 1QFY2024, taking the company's “outstanding” orderbook to a record high of $27.7 billion.
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“This provides around three years of revenue visibility. ST Engineering announced that $6.5 billion worth of orders are expected to be delivered in the 2QFY2024 to 4QFY2024 period, which compares with our revenue estimate of $8.2 billion for the same period (i.e. 80% of our revenue estimate),” writes Jaisawal.
The analyst likes the company for its “defensive” dividends at a minimum dividend per share (DPS) of 16 cents, and its FY2023 to FY2026 profit compound annual growth rate (CAGR) of 15%.
“We see the commercial aerospace segment benefiting from higher MRO earnings (as a result of increased aircraft traffic), as the group experiences higher sales of nacelles, and as the economies of scale and learning curve improvements boost the profit of its passenger-to-freighter (PTF) conversion business,” notes Jaiswal.
He adds: “USS’s earnings should be aided by the right-sizing initiative of its satcom division and the continuous profit contribution from TransCore.”
Key drivers noted by Jaiswal include strong order wins and contributions from acquisition, while key risks include the slower revival in the CA segment, lower-than-expected contribution from acquisitions and finally, a delay in the implementation of Singapore’s smart nation initiative.
As at 10.56am, shares in Singapore Technologies Engineering were trading one cent lower or 0.25% down at $4.03.
