ST Engineering - Maybank Research 2023-05-15: Onward & Upward With Record Order Book

• ST Engineering (SGX:S63)'s 1QFY23 revenue of S$2.289b (+13% y-o-y) is marginally below our and consensus estimates, accounting for 24% of FY22E. Urban Solution & Satcom (USS) and Defence & Public Security (DPS) are largely backend loaded businesses thus we would expect improvements in 2H23e as milestone projects are delivered.
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Growth in all business segments

• ST Engineering's 1Q23 topline grew on higher contribution from Commercial Aerospace (CA) (+29% y-o-y), Urban Solution & Satcom (USS) (+46% y-o-y) and Defence & Public Security (DPS) (+1% y-o-y) and strong contribution from TransCore.
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• Commercial Aerospace (CA) segment continued to grow on air travel recovery to >80% of pre-COVID levels and China reopening opportunity. We expect higher hangar capacity utilisation across the group with China’s reopening and narrowing losses as the division progresses along the PTF conversion learning curve.
• For Defence & Public Security (DPS), we expect some relief in FY23 as margins were hit by higher energy costs in 2H22. This is in addition to the absence of S$80m of losses annually following its exit from the US marine business.

All in, we forecast ST Engineering’s EBIT margin to return to its pre-COVID level of 9.4% by end-FY23.

Sizeable defence contract wins

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Kelvin Tan Maybank Research | https://www.maybank-ke.com.sg/ 2023-05-15 SGinvestors.io

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