Singapore Technologies Engineering (ST Engineering) is having a strong year, announcing multiple contract wins, buybacks and collaborations. Its new data centre will also support energy-intensive AI workloads. With heightened maintenance, repair and overhaul (MRO) demand expected over the next few years, the company is poised for continued share price outperformance.
The stock has risen over 20.3% over the past 12 months, closing at $4.27 on July 16. Following the release of its 1QFY2024 ended March results, the counter broke its 50-month high when it closed at $4.20 on May 14.
As at February 29, Temasek and its subsidiaries own a combined 51.68% stake in ST Engineering. Temasek last increased its stake in 2014, when its wholly-owned unit Vestal Investments bought 3.4 million shares in ST Engineering for about $11.8 million.
Notably, there are synergistic efforts between the two. In 2021, for example, ST Engineering’s wholly-owned aviation asset management unit partnered with Temasek to set up a 50:50 joint venture (JV) for freighter aircraft leasing. The JV company, Juniper Aviation Investments, targeted to build a portfolio valued at US$600 million within five years, investing in passenger aircraft to be converted into highly efficient freighters.
Following a robust FY2023 — when the company hit the milestone of over $10 billion in revenue — it continued to see strong financial performance. In its 1QFY2024, the company reported revenue of $2.7 billion, 18% higher y-o-y. This was due to higher revenue from the commercial aerospace (CA) and defence and public security (DPS) segments, which grew 32% and 14% respectively. Its urban solutions and satcom segment (USS), however, saw a slight 1% y-o-y dip.
During the quarter, ST Engineering clinched $3.04 billion in new contracts, with the DPS segment alone accounting for over half at $1.65 billion.
See also: Why Genting Singapore and Q&M Dental are undervalued
The contract wins seem to continue in 2QFY2024. Between April and June, the company clinched a $100 million contract for Nato standard 155mm ammunition and 40mm ammunition from European customers. The company highlights that the 155mm ammunition was signed with new European customers.
Other segments secured contracts, too. On Feb 28, the company announced that TransCore was awarded a Dubai Mall parking lot system-related project, although the financial details of the deal were not disclosed. In May, the USS segment won another contract worth $175 million to modernise Singapore’s public bus fleet of about 5,800 vehicles and operations, to be completed in 2027.
Analysts continue to be upbeat on ST Engineering. UOB Kay Hian’s Roy Chen wrote in his July 16 report that the company can exceed its revenue target of $11 billion for 2026 this year. In his outlook, Chen expects ST Engineering’s revenue to grow by a three-year CAGR of 6.4% in 2024–2026, underpinned by its strong order book.
See also: High time for telcos Singtel, StarHub and M1 to consolidate?
Among the three segments, commercial aerospace is expected to see the strongest growth at 19%, 5% and 5% y-o-y in 2024, 2025 and 2026 respectively, backed by its MRO capacity expansion — beating the global MRO industry’s average growth rate.
Despite this, Chen notes a risk of negative margin surprises due to project cost overruns or the inability to pass on cost pressures from inflation, which may negatively impact near-term share price performane.
