ST Engineering and Peer Companies: Comprehensive Analysis

Report Date: February 6, 2025

Broker: CGS International

ST Engineering: A Strong Finish to 2024

ST Engineering (STE) concluded 2024 on a high note with robust order wins in the fourth quarter, amounting to S\$4.3 billion. This represents a 37% year-on-year (YoY) increase and a 99% quarter-on-quarter (QoQ) surge. Key contributors to this success were its Commercial Aerospace (CA) and Defense units, with Urban Solutions and Satcom (USS) showing moderate performance.

Commercial Aerospace (CA)

The CA segment delivered solid results, securing orders worth S\$1.8 billion—a remarkable 140% QoQ and 80% YoY growth. These wins were driven by engine maintenance, repair, and operations (MRO), notably a LEAP-1B contract with Akasa Air, as well as nacelle contracts.

Defense

The Defense unit secured S\$1.7 billion in orders, marking an 80% QoQ and 13% YoY increase. Notable contracts included the Kazakhstan armored vehicle design/production contract, 155mm ammunition orders, digital systems contracts (including AI cloud infrastructure and cybersecurity solutions), and a shipbuilding contract for a walk-to-work vessel for the oil and gas industry.

Urban Solutions and Satcom (USS)

USS achieved decent results with S\$0.7 billion in orders, up 48% QoQ and 9% YoY. Highlights included rail contracts in Asia, smart city contracts in Singapore, tolling contracts in the US, and various Satcom deals.

Financial Outlook

For 2H24, STE is expected to report a core net profit of S\$366 million, reflecting a 9% half-on-half (HoH) and 24% YoY growth. Revenue is projected at S\$5.9 billion (+7% HoH, +13% YoY), driven by strong performance in Defense (+21% YoY), healthy growth in CA (+10% YoY), and modest USS growth (+3% YoY).

Recommendation

The stock remains rated as “Add” with a target price of S\$5.30, implying a 9.7% upside. Key catalysts include significant Defense and USS order wins and improved CA margins. Risks include Aerospace supply chain issues and challenges in turning around the Satcom segment.

Peer Analysis

Commercial Aerospace Companies

The Commercial Aerospace sector features a wide range of players with varying financial profiles and growth trajectories.

AAR Corp (AIR US)

AAR Corp is not rated (NR) but showcases a forward price-to-earnings (P/E) ratio of 15.8x for CY25F, improving to 13.7x for CY26F. The company has a market cap of US\$2.44 billion, but no dividend yield data was provided.

FTAI Aviation Ltd (FTAI US)

FTAI Aviation has a market cap of US\$11.99 billion and trades at 21.6x CY25F P/E, improving to 16.6x CY26F. Despite its high valuation, the company shows a modest dividend yield of 1.0%.

General Electric Co (GE US)

GE boasts a significant market cap of US\$219.57 billion. The company trades at 37.2x CY25F P/E, improving to 31.4x CY26F. Its recurring return on equity (ROE) for CY25F is 30.8%, with a dividend yield of 0.7%.

HEICO Corp (HEI US)

HEICO Corp has a market cap of US\$28.9 billion and trades at 53.2x CY25F P/E, improving to 46.3x CY26F. Its dividend yield is notably low at 0.1%.

RTX Corp (RTX US)

RTX has a market cap of US\$172.1 billion and trades at 20.9x CY25F P/E, improving to 18.9x CY26F. The company offers a modest dividend yield of 2.0%.

Safran SA (SAF FP)

Safran trades at 29.3x CY25F P/E and 24.5x CY26F, with a market cap of US\$105.6 billion and a dividend yield of 1.4%. Its ROE is impressive at 25.0%.

SIA Engineering (SIE SP)

SIA Engineering is rated “Add” with a target price of S\$2.65. It trades at 17.2x CY25F P/E, improving to 15.7x CY26F. The company offers a dividend yield of 4.2%.

Urban Solutions Companies

ABB Ltd (ABBN SW)

ABB has a market cap of US\$101.4 billion and trades at 22.1x CY25F P/E, improving to 20.1x CY26F. It offers a 1.8% dividend yield with a strong ROE of 28.5%.

Cisco Systems Inc (CSCO US)

Cisco is a heavyweight with a market cap of US\$249.2 billion. It trades at 16.4x CY25F P/E, improving to 15.2x CY26F, with a solid dividend yield of 2.6%.

Fujitsu Ltd (6702 JP)

Fujitsu has a market cap of US\$41.4 billion and trades at 19.5x CY25F P/E, improving to 19.7x CY26F. The dividend yield stands at 0.9%.

Defence and Public Security Companies

BAE Systems PLC (BAESY US)

BAE Systems trades at 16.0x CY25F P/E, improving to 14.5x CY26F, with a market cap of US\$45.67 billion. It offers a dividend yield of 2.9%.

Elbit Systems Ltd (ESLT US)

Elbit Systems trades at 31.2x CY25F P/E, improving to 25.6x CY26F, with a market cap of US\$13.9 billion. Its dividend yield is 0.7%.

Lockheed Martin Corp (LMT US)

Lockheed Martin has a market cap of US\$105.89 billion and trades at 16.5x CY25F P/E, improving to 15.3x CY26F. It offers a dividend yield of 3.0%.

Conclusion

The report provides a comprehensive analysis of ST Engineering and its peer companies across various sectors. With strong order wins and an optimistic financial outlook, ST Engineering remains a compelling investment opportunity. However, investors should also consider the promising prospects of its peers in Commercial Aerospace, Urban Solutions, and Defense sectors. The detailed insights and recommendations provide valuable guidance for informed investment decisions.