Comprehensive Analysis of ST Engineering and Other Notable Companies

Report by Maybank Research Pte Ltd, dated November 19, 2024

Overview of ST Engineering (STE SP)

Singapore Technologies Engineering (STE) has reported mixed operational trends, leading to a downgrade from a “Buy” to a “Hold” recommendation. The company achieved a 9M revenue of SGD8.3 billion, marking a 14% increase year-on-year. However, its third-quarter revenue of SGD2.8 billion reflects a marginal 1% decline quarter-on-quarter, despite a 14% year-on-year rise. The defense and public security segments have been the main drivers of growth, while commercial aerospace and urban solutions are experiencing a slowdown. The order book has seen a slight dip, attributed in part to foreign exchange impacts.

Defense and Aerospace Performance

The Defense and Public Security (DPS) segment reported a 3Q revenue of SGD1.272 billion, showing a growth of 2% QoQ and 31% YoY. For the first nine months, the DPS segment revenue rose 18% YoY, amounting to SGD3.644 billion. This growth was robust across sub-segments, including digital and land & marine. Conversely, the Commercial Aerospace (CA) segment saw a 3Q revenue decline of 2% QoQ, settling at SGD1.054 billion, though it increased 7% YoY. The segment’s 9M revenue rose 16% YoY to SGD3.285 billion, with strong growth in engine maintenance, repair, and overhaul (MRO). However, the Passenger to Freighter (PTF) operations faced challenges due to feedstock issues but were partly offset by airframe MRO.

Urban Solutions and SATCOM

The Urban Solutions and Satellite Communications (USS) segment reported a 3Q revenue of SGD455 million, which represents a decrease of 7% QoQ and 5% YoY. The 9M segment revenue remained flat at SGD1.373 billion. Higher revenue from Urban Solutions, including TransCore, was offset by a decline in SATCOM revenue. The DPS segment remains a stronghold for the group, while the CA segment is undergoing a change in business mix due to supply chain issues. The USS segment is taking longer to rebound than anticipated.

Order Book and Future Outlook

STE’s order book currently stands at SGD26.9 billion, down from SGD27.9 billion in the second quarter, largely due to FX effects. The third quarter saw new order wins worth SGD2.2 billion, divided among CA, DPS, and USS segments. Despite STE’s commendable execution capabilities, the slowdown in order book growth and the prolonged turnaround in the USS segment have led to a downgrade to “Hold.” The stock has seen a 14% increase year-to-date, compressing yields and presenting downside risks to earnings growth.

Other Companies Covered

SIA Engineering (SIE)

SIA Engineering (SIE) has been grappling with the effects of the global pandemic, which severely disrupted the aviation industry. The company’s outlook is heavily dependent on the recovery of the aviation sector. There are expectations for improved margins if aircraft original equipment manufacturers (OEMs) decelerate their aftermarket expansion. SIE’s core focus remains on maintaining a strong order book and leveraging its expertise in aircraft maintenance.

SATS

SATS is navigating the current economic landscape by focusing on passenger to freighter conversion, which is crucial as airlines look to upgrade their fleets. The company faces challenges related to aircraft material supply due to rising inflation, which could impact its operations. SATS is strategically positioned to benefit from any rebound in airborne cargo growth, especially if trade relations between major global players stabilize.

Capitaland Development (CD)

Capitaland Development (CD) continues to focus on its core competencies in property development and management. The company’s strategy involves capitalizing on urbanization trends and sustainable development initiatives. CD’s financial health remains robust, with a notable presence in emerging markets, which presents opportunities for growth despite potential global economic headwinds.

Singapore Post (SPOST)

Singapore Post (SPOST) is committed to expanding its logistics and e-commerce solutions to adapt to the changing consumer landscape. The company is enhancing its digital capabilities to improve service delivery and customer engagement. SPOST’s strategic initiatives aim to capture a larger market share in the growing e-commerce sector while maintaining efficient postal operations.

Yangzijiang Shipbuilding (YZJ)

Yangzijiang Shipbuilding (YZJ) remains a key player in the shipbuilding industry, with a strong order book that underpins future revenue streams. The company is focusing on technological advancements and sustainability in its shipbuilding processes. YZJ is well-positioned to benefit from the global demand for new and efficient vessels, despite challenges in raw material supply and geopolitical tensions.

Sembcorp Industries (SCI)

Sembcorp Industries (SCI) is actively pursuing growth opportunities in the renewable energy sector, aligning with global sustainability trends. The company is investing in green energy projects and enhancing its environmental, social, and governance (ESG) credentials. SCI’s diversified portfolio across various sectors provides a buffer against market volatility.

Keppel Corporation (KEP)

Keppel Corporation (KEP) is focusing on its core businesses, including infrastructure, property, and asset management. The company is seeking to optimize its operations and enhance shareholder value through strategic divestments and acquisitions. KEP’s commitment to sustainability and innovation positions it well for long-term growth, although it faces challenges from fluctuating oil prices and regulatory environments.

Conclusion

The report by Maybank Research Pte Ltd provides a detailed and insightful analysis of ST Engineering and other significant companies. Each company is navigating unique challenges and opportunities within their respective industries. While some are poised for growth through strategic initiatives and market expansions, others face hurdles that require careful management and adaptation. The recommendations and outlooks provided in the report offer valuable guidance for investors seeking to understand the current market dynamics.