Singapore Technologies Engineering (STE) growth outlook remains positioned for the future, supported by a strong order book of S$14.1b. Looking ahead, we remain positive on: 1) STE‘s electronics sector exposure to high growth areas relating to smart nation initiatives (ICT-related business) and cyber security, 2) aerospace arm post acquisition of MRAS, 3) healthy order book, and 4) recovering marine segment.
Positioning for growing air traffic in the region–ST Engineering (STE) recently announced that its Aerospace arm and Vietnam Airlines Engineering Company (VAECO), a subsidiary of Vietnam Airlines Co Ltd, have incorporated a new joint venture company, Vietnam Singapore Technologies Engineering Aerospace Co. Ltd. The JV will provide component Maintenance, Repair & Overhaul (MRO) solutions, and STE has a 49% stake in the JV. Existing maintenance facilities of Vietnam Airlines at Noi Bai International Airport in Hanoi and Tan Son Nhat International Airport in Ho Chi Minh City will be leveraged upon, and new infrastructure will be invested in to carry out component MRO work at these facilities. The new component MRO facilities are expected to begin operations in mid 2019.
Collaborating on enhanced digital and connectivity solutions–In a separate announcement, STE also mentioned that it has entered into a partnership agreement with Nokia on key technology areas such as 5G and Internet of Things (IoT). The collaboration will allow both companies to cross sell their solutions and expand business offerings. STE will resell Nokia‘s internet protocol (IP), optical networking and wireless broadband solutions which include 5G, last-mile and analytics. Nokia will in turn incorporate STE‘s Very Small Aperture Terminal (VSAT) and cybersecurity solutions in its global project offerings.
Bright long term prospects–STE has had a good start to the year in terms of contract wins, which have increased its order book to a high of S$14.1b as at end Mar. About S$4.2b of this is to be delivered in 9M19. Potential catalysts going forward include the US Postal Service‘s tender for next-gen electric trucks, as well as the exercising of options for two polar security cutters by the US Coast Guard. We expect further growth in order book over the longer term with better traction in Smart City solutions and export of defence solutions. Further, STE has outperformed the Singapore stock market by a wide margin this year and given it's fundamental and technical momentum, we expect this trend to continue.
Besides capitalising on air traffic growth, collaboration on digital and wireless connectivity and positive long term prospects, we see three key potential catalysts that could strengthen STEs position:
1. Recovery in marine sector earnings
2. Significant growth in contract wins driven by electronics and aerospace sector
3. Better-than-expected margins from PTF projects