ST Engineering: Update Shows Aerospace Recovery; Revenue on Track With Expectations

Singapore Technologies Engineering S63 experienced a 29.5% year-on-year recovery in its first-quarter commercial aerospace activities that helped drive group revenue up 12.6% year on year. We believe STE is on track to meet our full-year 2023 revenue growth estimate of 11.3%. First-quarter revenue of SGD 2,289 million makes up 22.8% of our full-year estimate, in line with historical seasonal contribution. No profit details were provided. The main positive is the very strong orderbook wins during the period. This affirms our narrow moat rating. STE’s outstanding orderbook is now at SGD 25.4 billion, which implies solid revenue visibility through first-quarter 2025. We keep our fair value estimate at SGD 4.60 and we remain buyers of the shares.

The breakdown of the first-quarter revenue numbers shows commercial aerospace coming in slightly ahead of our full-year assumptions, urban solutions tracking our estimate, and the defense and public security segment falling behind. STE guides that revenue from both the urban solutions and defense segments will pick up in the second half. The lag in defense segment revenue is likely to be mitigated, in our view, on the profit level by the absence of loss-making U.S. marine activities which were divested in fourth quarter 2022.

STE highlighted the recovery of nacelles maker, fully owned subsidiary MRAS. The main aircraft manufacturers such as Airbus and Boeing have been facing delayed deliveries due to supply chain constraints, which we expect to abate during 2023 and into 2024. We think this points to a pickup in MRAS sales in the next few quarters. However, the satellite communications business is still facing challenges. We think this is a current drag for the urban solutions segment. But we also see a more competitive environment, which may take a longer time for STE to address. However, strength in the aerospace segment and Transcore should help mask satcom weakness.