ST Engineering - RHB Invest 2023-01-19: To Benefit From Chinese Aviation Traffic Recovery

• ST Engineering (SGX:S63)’s aerospace business should see a strong recovery in MRO revenues amidst the earlier and faster-than-expected relaxation of China’s zero-COVID policy. While global demand for air cargo is tailing off, there are limited downside risks as its P2F conversion slots are fully booked until 2025-2026. Growth in other segments and contributions from new businesses should enable it to see an 8% profit CAGR in 2021-2024F.
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China’s reopening should help revive aviation traffic.

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• China’s surprise decision to drop border curbs earlier (from 8 Jan onwards) has given the industry a boost, with some experts believing that the country reopening its doors to international travel could propel global air traffic back to pre-pandemic levels as soon as Jun 2023.
• While we remain optimistic about the outlook, we believe that some countries' reintroduction of tougher measures and COVID-19 testing for passenger arrivals will result in a more gradual recovery in international aviation traffic. China's aviation regulator wants passenger traffic to reach around 75% of pre-pandemic levels this year, from 38% in 2022.

Recovery in aviation traffic should boost demand for MRO services.

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Shekhar Jaiswal RHB Securities Research | https://www.rhbgroup.com/ 2023-01-19 SGinvestors.io

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