ST Engineering - CGS-CIMB Research 2024-02-12: Longer-term Growth Drivers Intact

• We expect airlines to face capacity disruptions in 2024F as safety issues surrounding newer generation aircraft/engines could drive increased fleet groundings. We believe this should translate into airlines extending the service life of older aircraft or reinstating their inactive fleet, driving heightened demand for ST Engineering (SGX:S63)’s MRO services given the heavier work content associated with older aircraft models.

Bright outlook ahead for Commercial Aerospace (CA)

• - Read this at SGinvestors.io -
• - Read this at SGinvestors.io -

Pushing back our recovery expectations for Urban Solutions and Satcom (USS)

• Against the backdrop of slow and uneven economic growth in 2024F, we think enterprise spending could take a hit as companies slow their non-essential spending. Margin recovery will likely be weighed by increased R&D costs, slower project executions and time lag for Satcom transformation initiatives to bear fruit.
• Ramp-up of major projects in 2024-25F (e.g. US congestion pricing and tolling projects, Taiwan rail mobility) should be a key topline driver, in our view.
• Following a review of our margin assumptions, we temper our growth expectations and now expect USS operating profit margin to only exceed FY20 levels in FY25F (vs. FY24F previously) upon full integration of subsidiary TransCore and realisation of streamlined Satcom costs.

2H23F: expecting net profit of ~S$276m (+10% y-o-y, -2% h-o-h)

• Read more at SGinvestors.io.

LIM Siew Khee CGS-CIMB Research | Kenneth TAN CGS-CIMB Research | https://www.cgs-cimb.com 2024-02-12 SGinvestors.io

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