Following the release of Singapore Technologies Engineering ’s (ST Engineering) 4QFY2024 order wins of $4.3 billion, CGS International (CGSI) analysts Kenneth Tan and Lim Siew Khee have kept their “add” call on the stock at an unchanged target price of $5.30.
Citi Research’s Luis Hilado notes a similar sentiment, maintaining a “buy” call at a target price of $5.12.
“From here on, we think ST Engineering will report quarterly order wins two to three weeks before its results announcement to provide investors more colour on its operations,” write the CGSI analysts in their Feb 6 report.
In the quarter, the group’s commercial aerospace (CA) segment order wins climbed 140% q-o-q and 80% y-o-y to $1.8 billion, thanks to engine maintenance, repair and operations (MRO), for LEAP-1B engines and nacelle contracts.
Order wins in the group’s defence and public security (DPS) segment were similarly strong at $1.7 billion, a 80% q-o-q and 13% y-o-y growth, mainly due to contributions from Kazakhstan Paramount Engineering, 155 millimeter ammunition order wins, new digital systems contracts and finally, shipbuilding contract for a walk-to-work vessel used in the oil and gas (O&G) industry.
Following the trend, the urban solutions and Satcom (USS) business’s order wins were decent at $700 million, a 48% q-o-q and 9% y-o-y improvement. This came on the back of rail contracts in Asia, tolling contracts in the US, smart city contracts in Singapore, and various Satcom contracts.
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Tan and Lim write: “Given the strong 4QFY2024 order wins, we would expect its end-4QFY2024 order book to be higher than the $26.9 billion as at end-3QFY2024.”
They expect ST Engineering’s 2HFY2024 core profit to arrive in-line with Bloomberg consensus at $366 million, a 9% h-o-h and 24% y-o-y improvement.
“We expect 2HFY204 revenue of $5.9 billion, driven mainly by strong defence performance as all sub-segments likely saw double-digit growth, healthy CA growth from elevated MRO demand but partially offset by passenger-to-freighter (PTF) execution slowdown, and slight USS growth as TransCore growth was weighed by Satcom decline,” note Tan and Lim.
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Overall, the analysts like ST Engineering for its double-digit FY2025 earnings per share (EPS) growth as the group benefits from aerospace and defence tailwinds.
Meanwhile, Citi’s Hilado is keeping a weather eye on the US dollar’s impact on the group’s businesses.
He writes: “Management previously indicated that every 1% movement in the US dollar has an around $24 million impact to revenues but that actual profit impact is marginal due to active hedging.”
“The announcement ahead of the quarterly update represents an improvement in the pace of disclosure and signals management confidence in its future order book growth, in our view.”
Hilado sees ST Engineering’s topline momentum driving operational leverage and margin improvement across its core businesses.
He notes: “We recognise the existence of near-term risks but take positively that a healthy base of contracts to win can provide the economies of scale to offset such.”
As at 11.10 am, shares in ST Engineering are trading 18 cents higher or 3.73% up at $5.01.
