ST Engineering: A Comprehensive Analysis of the Latest Developments and Industry Peers

Broker: CGS International

Date of Report: December 9, 2024

In this detailed analysis, we explore the latest developments surrounding ST Engineering, its strategic goals, industry outlook, and how it stacks up against its peers in various sectors. This report is powered by the EFA Platform and reflects the insights and forecasts of CGS International.

ST Engineering: A Look Forward

ST Engineering is gearing up for its Investor Day in March 2025, where new targets are expected to be announced. These targets may include an international defense outlook and capital management strategies. The company is predicted to experience three consecutive years of double-digit earnings growth by FY25, thanks to the execution of projects from its impressive order book of S\$27 billion.

Defense Outlook

ST Engineering’s defense business forms a significant portion of its revenue, and the outlook remains positive. The company is expected to achieve a c.15% year-on-year growth in FY25. The international defense business has accelerated faster than expected, attributed to geopolitical tensions, with the total addressable market estimated at US\$5 billion from 2022-2027. Management indicates there might be more updates, especially regarding Eastern Europe and the Middle East markets.

Exceeding Previous Targets

ST Engineering has exceeded some of its targets set in 2021, such as achieving S\$3.9 billion in Commercial Aerospace revenue by FY23. The digital business is on track to surpass its goal by FY24, with a forecasted revenue of more than S\$580 million. However, there may be delays in smart city revenue, projected at S\$2.3 billion by FY26.

Capital Management and Dividends

Capital management remains a focus, with an emphasis on debt repayment over the next three years. ST Engineering may increase its dividends, with the potential for a higher DPS of S\$0.18-S\$0.19, assuming a payout of around 70% for FY25/FY26.

Industry Peer Comparison

This section provides a detailed comparison of ST Engineering with its industry peers across various sectors, including Commercial Aerospace, Urban Solutions, Satellite Communications, Defense and Public Security, and Marine.

Commercial Aerospace

The sector includes companies like AAR Corp, FTAI Aviation Ltd, General Electric Co, HEICO Corp, RTX Corp, Safran SA, SIA Engineering, Spirit AeroSystems Holdings Inc, and Triumph Group Inc. ST Engineering stands out with a significant growth forecast and robust recurring ROE. In particular, SIA Engineering is also highlighted with an “Add” recommendation, indicative of its promising growth prospects.

Urban Solutions

Key players in this segment include ABB Ltd, Cisco Systems Inc, Fujitsu Ltd, Hitachi Ltd, Honeywell International Inc, International Business Machine, Intel Corp, Motorola Solutions Inc, NEC Corp, Schneider Electric SE, and Siemens AG. The report highlights the technological advancements and strategic initiatives by these companies, with ST Engineering’s smart city focus being a notable strategy for future growth.

Satellite Communications

Companies such as EchoStar Corp, Eutelsat Communications, Gilat Satellite Networks Ltd, Iridium Communications Inc, and Viasat Inc are analyzed. ST Engineering’s Satcom business faces challenges but remains a key area for potential growth.

Defense and Public Security

This sector includes BAE Systems PLC, Elbit Systems Ltd, General Dynamics Corp, Hanwha Aerospace Co Ltd, Hyundai Rotem Co Ltd, LIG Nex1 Co Ltd, Lockheed Martin Corp, Mitsubishi Heavy Industries Ltd, Northrop Grumman Corp, Oshkosh Corp, and Rheinmetall AG. ST Engineering’s strong position in defense is reinforced, with international expansion being a critical focus area.

Marine

Companies such as China CSSC Holdings Ltd, China Shipbuilding Industry Co, Hanwha Ocean, HD Hyundai Mipo, Korea Shipbuilding & Offshore, Samsung Heavy Industries, and Yangzijiang Shipbuilding are covered. The report highlights the strategic moves within the marine sector, with ST Engineering’s contributions noted.

ESG and Sustainability Efforts

ST Engineering has made significant strides in improving its ESG scores, with a focus on sustainability and ethical practices. The company has achieved a reduction in greenhouse gas emissions and has set ambitious targets for continued improvement. This commitment has enhanced its appeal to investors prioritizing ESG factors.

Conclusion

ST Engineering continues to position itself as a leader in the aerospace, defense, and urban solutions sectors, with a strong focus on sustainability and strategic growth. The company’s upcoming Investor Day is highly anticipated, with expectations of new targets and strategic insights.