Date of Report: October 3, 2024
Broker: CGS International

Company Overview

ST Engineering is a Singapore-based company specializing in the aerospace, electronics, land systems, and marine sectors. It is known for its capabilities in providing integrated engineering solutions and defense products. The company is also a leader in Maintenance, Repair, and Overhaul (MRO) services, supporting both commercial and defense aviation.

Growth Drivers

ST Engineering is well-positioned for growth, driven by strong defense and MRO tailwinds. The company is expected to benefit from new contracts in foreign ammunition and larger defense projects, which will further enhance its revenue streams.

Key Growth Catalysts:

1. Defense Contracts:
   ST Engineering is anticipated to secure new foreign ammunition contracts, with larger defense contracts likely to follow in the coming months. These contracts will contribute significantly to its growth, with operating profit margins (OPM) in defense expected to be sustained at around 13%.

2. MRO Tailwinds:
   The company’s MRO business remains strong, supported by positive commentary from industry peers, such as AAR Corp, and the slow pace of new aircraft deliveries. The continuous demand for aircraft maintenance and the slower-than-expected recovery of new aircraft manufacturing provide ST Engineering with a steady stream of business in its MRO segment.

3. Rate Cut Beneficiary:
   ST Engineering stands to gain as a potential beneficiary of expected interest rate cuts, which would improve borrowing conditions and support its capital-intensive projects.

Financial Outlook and Recommendation

ST Engineering’s defense and aerospace segments are expected to maintain healthy earnings momentum, backed by consistent demand and expanding contracts. The stock is recommended as an “Add” with a higher target price of S$5.30, based on a 20x CY25F P/E multiple, reflecting its strong growth potential.

Investment Recommendation

With its robust defense and MRO tailwinds, coupled with strong earnings growth, ST Engineering is recommended for investors seeking exposure to the defense sector and steady aerospace-related revenue. The company’s positioning as a rate cut beneficiary further strengthens its potential for long-term gains.

Contact for Further Analysis

• Analyst: CHUA Wei Ren, CMT
• Telephone: (65) 6210 8612
• Email: weiren.chua@cgsi.com