“Meanwhile, for Singapore Technologies Engineering’s defence and public security (DPS) division we note that our aerospace and defence team expects global defence spending as a per cent of gross domestic product (GDP) to be relatively flat with the likes of Singapore spending 2.7% of GDP,” adds Hilado.
He continues: “With ST Engineering’s exposure locally and globally, a steady if not growing pie for ST Engineering to gain further order book from is likely.”
Overall, the Citi analyst sees the group’s topline momentum driving operational leverage and margin improvement across its core businesses.
Hilado: “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.”
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Key downside risks noted by the analyst include a slowdown in aerospace MRO demand, significant acquisitions that dampen initial overall returns in order to ingest and higher-than-expected integration costs of existing acquisitions.
As at 5.06 pm, shares in ST Engineering are trading 9 cents higher or 1.95% up at $4.71.
