Introduction
This comprehensive research report by CGS International takes an extensive look into ST Engineering, a major conglomerate headquartered in Singapore, and its various business segments across aerospace, urban solutions and satcom, and defence & public security. The report provides an engaging deep dive into the company’s fundamentals, order book strength, EPS growth forecasts, dividend policy enhancements, and detailed peer comparisons. With a raised full-year dividend per share (DPS) and an expectation of robust EPS growth driven by favourable mix, productivity gains, and cost optimization, the report outlines both near-term developments and medium‐term growth catalysts. In this detailed overview, every aspect from financial performance to ESG achievements is meticulously covered for an audience keen on the latest investment insights.
ST Engineering: Overview and Key Highlights
ST Engineering delivered several encouraging results in FY24, with core net profit hitting approximately S\$702 million, effectively in line with internal and Bloomberg consensus estimates. A notable detail was the raised dividend policy – the DPS for 4Q24 increased from 4 Scts to 5 Scts, bringing the FY24 DPS to 17 Scts. Key performance drivers include strong margins in Commercial Aerospace (CA) with a significant 200bp margin improvement, a rebound in Urban Solutions’ (USS) segment despite some lag in Satcom turnaround, and overall strong order book dynamics.’,
The report forecasts a medium-term EPS growth of roughly 14% in FY25, underpinned by strategic repositioning across segments, international defence tailwinds, turnaround initiatives in Satcom, and lower interest expenses. With an attractive target price set at S\$5.60 (a rise from S\$5.30) and the valuation updated to FY26F at a 20x P/E based on the 10-year historical average, the outlook remains positive. The upcoming Investor Day in March 2025 is highly anticipated as management is expected to shed further light on segment targets and capital management.
Segment Deep Dive
Commercial Aerospace (CA)
The Commercial Aerospace segment emerged as a significant growth driver. For 2H24, CA generated revenue of approximately S\$2.15 billion – slightly below forecasts but still remarkably impressive. Key to the segment’s performance was the robust growth in maintenance, repair, and overhaul (MRO) activities. Engine MRO revenue experienced significant gains as cost optimization measures and productivity improvements pushed EBIT margins higher, culminating in a strong 9.8% EBIT margin for 2H24 – an improvement of roughly 200 basis points year-over-year.
Management remains optimistic that CA’s medium-term revenue growth will outpace industry benchmarks due to strong competitive positioning, new hangar capacity coming online in strategic locations such as Ezhou, Singapore, and Pensacola, and an elevated demand for engine MRO driven by older aircraft utilisation and ramping up of A320neo deliveries. The report further outlines that the substantial progress in operating efficiency and favourable revenue mix have been key catalysts for the segment’s performance.
Urban Solutions & Satcom (USS)
The Urban Solutions & Satcom segment had mixed results in 2H24. Overall revenue was just slightly below expectations at S\$1.04 billion, with Urban Solutions itself achieving modest growth year-over-year (up 1% y/y) and a healthy 13% increase half-on-half (“hoh”).
Satcom, while undergoing a much-needed turnaround, showed signs of recovery with 4Q24 revenue rising by 12% year-over-year and EBIT turning marginally positive due to restructuring measures and cost-saving initiatives. Despite the improvement, results fell a little short of forecasts that had banked on a more robust margin recovery. Moreover, the report highlights a promising development where TransCore secured its first tolling contract in Southeast Asia—an encouraging sign for cross-selling efforts and enhanced revenue diversification in this segment.
Defence & Public Security (DPS)
The Defence and Public Security segment continued to display resilient performance driven by strong demand amid heightened geopolitical tensions. In 2H24, DPS generated revenue of S\$2.56 billion and achieved an EBIT of S\$312 million. While EBIT margins have remained relatively flat (at approximately 12.2% in 2H24 and an annualised margin of 12.9% for FY24), the segment delivered consistent performance across all sub-segments. Notably, Digital Systems and Land Systems recorded substantial year-over-year growth, highlighting the segment’s broad-based strength.
Management is bullish on the future, with ongoing international opportunities and a pipeline that could be further bolstered following robust wins in recent quarters. The report notes that despite the modest EBIT margin compression, the order book – which reached a record-high of S\$28.5 billion – and future cashflow savings of S\$60-70 million per annum from the Satcom restructuring reinforce the positive outlook for the DPS segment.
Financial Summary & Key Metrics
The research report provides robust financial metrics for ST Engineering, underscoring its consistent growth and efficiency improvements. Key highlights include:
- Revenue Growth: Group revenue increased from S\$10,101 million in Dec-23A to a forecast of S\$13,392 million by Dec-27F.
- EPS Performance: The core EPS has been estimated to grow steadily from S\$0.18 in Dec-23A to a forecast of S\$0.30 by Dec-27F, reflecting a healthy compound annual growth rate.
- Profit & Margins: With solid operating EBITDA margins and EBIT margins steadily rising, improved product mix and cost optimisation have been pivotal. The 2H24 EBIT margin in Commercial Aerospace reached an impressive 9.8%, while the overall group EBIT margin edged up to around 9.6%.
- Dividend Policy: The annual DPS was raised to 17 Scts for FY24, and the firm is providing further clarity on dividend policy during the Investor Day in March 2025.
- Balance Sheet: The company shows steady improvements in net equity, alongside a controlled debt profile and strengthened cash positions over the forecast horizon.
In summary, ST Engineering’s financial strength is underpinned by both organic growth across its segments and its ability to manage costs effectively. The report provides detailed comparative metrics such as P/E ratio, P/BV, ROE, and free cash flow projections that reinforce the solidity of the company’s fundamentals.
Comprehensive Peer Comparison Analysis
The report goes beyond ST Engineering by presenting an extensive peer comparison framework covering key identified companies within each segment. Notable companies across the various segments include:
Commercial Aerospace Peers
The Commercial Aerospace peer group is comprehensively benchmarked against industry leaders with companies such as AAR Corp AIR US, FTAI Aviation Ltd, General Electric, HEICO Corp, RTX Corp, Safran SA, SIA Engineering, Spirit AeroSystems Holdings, and Triumph Group Inc. The analysis delves into key valuation metrics including FD Core P/E multiples, dividend yields, and growth projections. ST Engineering’s robust competitive positioning is highlighted as several financial indicators, such as a healthy 7% CAGR for CA EBIT and margin expansions from cost efficiency measures, sit well within the historical medians and industry benchmarks.
Urban Solutions and Satellite Communications Peers
For the Urban Solutions segment and its satellite communications subset, peers such as ABB Ltd, Cisco Systems, Fujitsu Ltd, General Electric, Hitachi Ltd, Honeywell International Inc, IBM, Intel Corp, Motorola Solutions Inc, NEC Corp, Schneider Electric, and Siemens AG are analyzed. Alongside these, specific satellite communications companies including EchoStar Corp, Eutelsat Communications, Gilat Satellite Networks, Iridium Communications, and Viasat Inc are evaluated on their P/E multiples, dividend yields, and operational performance. ST Engineering’s rating and valuation – especially its attractive P/BV trajectory – remains competitive when juxtaposed with these peers.
Defence and Public Security Peers
The Defence peer comparison spans heavyweight names such as BAE Systems PLC, Elbit Systems Ltd, General Dynamics, Hanwha Aerospace, Hyundai Rotem, LIG Nex1, Lockheed Martin, Mitsubishi Heavy Industries, Northrop Grumman, Oshkosh Corp, and Rheinmetall AG. The report highlights that despite fluctuations in EBIT margins and geopolitical risks, the robust order book and a clear emphasis on cost-control allow ST Engineering to stand in favorable comparison to these firms. Valuation and fundamentals derived from revenue, EBIT and dividend coverage are central to the analysis, reaffirming that ST Engineering’s outlook is balanced and promising.
Maritime and Other Significant Sectors
For maritime-related activities, which include companies like China CSSC Holdings Ltd, China Shipbuilding Industry Co, Hanwha Ocean, HD Hyundai Mipo, Korea Shipbuilding & Offshore, Samsung Heavy Industries, and Yangzijiang Shipbuilding, the report briefly touches on operational performance, balance sheet metrics and short-term growth drivers. Although these sectors are not the primary focus for ST Engineering, the comparison underscores the diversified exposure and robust performance across the conglomerate’s various operating segments.
ESG and Corporate Governance
On the ESG front, ST Engineering’s transformation over the years is underscored by an improved ESG combined score from a historical B– to a B+ by 2023. The environmental score is particularly noteworthy, achieving an A rating due to significant emission reductions (a 36% reduction in GHG emission intensity in 2023) and outstanding resource efficiency. The social score improved markedly from C+ to A–, driven by comprehensive human rights policies and zero tolerance for unethical labor practices. While governance remains steady at B–, its overall ESG positioning is seen as a competitive advantage, especially with its ties to Temasek and Singapore’s 2030 Green Plan initiatives.
Order Book Dynamics and Valuation Trends
ST Engineering’s order book performance is a critical highlight with record-high order wins recorded in the last quarter driven mainly by its strong performance in Commercial Aerospace and Defence segments. The order book is valued at S\$28.5 billion as of 4Q24, with approximately S\$8.8 billion expected to be delivered in FY25F. In terms of valuation, the stock’s 12-month forward FD Core P/E and rolling P/BV ratios have been scrutinized in detail and compared against historical medians and multiple scenarios, which underpin the target price adjustments. The analysts have reiterated an “Add” recommendation driven by the consistent core EPS growth (forecasted at a 10% CAGR for FY24-27F) and enhanced profitability across segments.
Analyst Recommendations and Final Outlook
CGS International reiterates an “Add” recommendation on ST Engineering. With a target price raised to S\$5.60 from S\$5.30, the report posits that ST Engineering’s diversified growth drivers, including robust order wins, improved defensive margins, cross-sale successes in Satcom via TransCore, and solid dividend policy enhancements, create an attractive investment case. The report emphasizes the forthcoming Investor Day in March 2025, which is expected to further detail segment targets and provide clarity on capital management strategies. Downside risks include potential supply chain issues and sharp declines in order wins amid global economic headwinds, yet the overall fundamental outlook remains positive.
Conclusion
This extensive research report by CGS International provides an elaborate, data-rich analysis of ST Engineering along with its peers across multiple sectors including Commercial Aerospace, Urban Solutions & Satcom, and Defence & Public Security. With deep dives into financial performance, order book strength, and competitive positioning – and a strong “Add” recommendation supported by improved dividend yields, steady EPS growth, and superior ESG performance – the report offers valuable insights for investors seeking both stability and growth in a competitive market backdrop.
