7 Things You Need To Know About Singapore Technologies Engineering Ltd

Singapore Technologies Engineering Ltd (SGX: S63) ([stock_quote symbol=”SGX:S63″ show=”name” nolink=”1″ class=”1″]) is a conglomerate listed on the Singapore Exchange. It is one of the investee company of the country’s sovereign wealth fund, Temasek Holdings. The company has a market capitalization of S$11.6 billion.

With that, here are 7 things you need to know about ST Engineering.

    1. Stock Information

1

TICKER SYMBOL: SGX: S63

MARKET CAP: S$11.6 Billion

INDUSTRY: Industrial

The Business

ST Engineering as the name implies is an engineering group with diverse business interests. The company has 4 business segments namely; aerospace, electronics, land systems and marine segment.

ST Engineering also has a wide geographic reach for its provides services too, these include Singapore and over 100 countries in the various segments mentioned above.

ST egnineering Revenue

Source: Full year 2016 results presentation

Revenue contribution can be seen in the diagram above, it is evident from this that the Aerospace segment is the biggest contributor for the company, followed by Electronics, Land systems and lastly Marine. Let look at what these different business segments focus on to get a better idea.

Aerospace

The Aerospace segment at St Engineering, provides maintenance, repair and operations (MRO) services in many countries. It is one of the largest commercial airframe MRO provider operating a global network of facilities directly or through subsidiaries in America, Asia Pacific and Europe.  Its customers include leading airlines, airfreight and military operators. The Aerospace segment contributed S$2.48 billion in revenue and profit came in at S$240.4 million for the fiscal year ended 2016.

Electronics

Moving on to its Electronics segment, this segment is focused on delivering innovative advanced electronics and Infocomm Communications Technologies (ICT) solutions for a wide variety of customers. Some of these customers are e-Government, rail and intelligent transportation, satellite communications and cyber security. Not only does St Engineering provide this service in Singapore, it has operations in over 20 countries spanning North America, Latin America, Europe, Africa, the Middle East, China, India and Southeast Asia. This segment is also the second largest contributor for St Engineering having contributed S$1.89 billion in revenue and S$192 million in profits.

Land Systems

Next looking at land systems, this segment concentrates on integrated land systems, specialty vehicles and through-life support that meet the stringent requirements for defense, homeland security and commercial applications. In simple terms, this segment of St Engineering makes all the “cool” machines the armies use. This segment contributed S$1.3 billion in revenue and S$67.9 million in profit for the year ended 2016.

Marine

Lastly, the marine segment delivers high quality naval and commercial vessels. In addition, St Engineering provides customized shipbuilding, repair and conversion services at its yards in Singapore and the United States. This segment’s contribution amounted to S$841 million in revenue and $S63.6 million in profits.

Overall, St Engineering had revenue of S$6.68 billion and profit of S$471.2 million for the fiscal year ended 2016.

Key Opportunities

Defence Moat

ST Engineering is one of two company in Singapore who provides defence services, the other being Wong Fong Industries (SGX:1A1) which is a much smaller competitor.

ST Engineering is the only company in Singapore who provides defense services. This means that the government goes to St Engineering for most of its defense needs in Singapore. From research and development to manufacturing the whole process is handled by the same company.

Not only does St Engineering provide for Singapore defense it often wins contracts from the US and other countries as well for equipment which was developed right here in Singapore. This strength in research and development puts St Engineering in a sweet spot to continue developing new products and keeping itself relevant in the fast changing world.

Growth in Aerospace

Aerospace MRO services are on the rise with new airlines sprouting up and due to the exploding number of travelers. This is partly fueled by the increase in budget airlines which need their planes to be serviced regularly and quickly as downtime means losing money. This is where St Engineering aerospace business plays an important role in ensuring that planes are maintained well and repaired according to safety requirements. As more planes come online to service passengers this segment should see continued growth well into the future.

Key Risks

Marine downturn

In 2014, the oil market came crashing down and together with that St Engineering saw its marine business dwindle. This is because a lot of St Engineering marine business was related to the oil industry. This segment has been recovering in the last year as oil prices seem to have stabilised. However, for this segment to return to its days before the oil crash ST Engineering will need to expand its marine division to focus on other products. Currently, it doesn’t seem like management is doing that but we will have to wait and see.

Heavy dependence on Economic Outlook

ST Engineering, in my opinion, is heavily dependent on the economic outlook globally. Its defense business depends on how much governments want to spend each year on its military, while this has increased in the past consistently, its slowed down during recessions. Thus, affecting the sales of ST Engineering.

Similarly, its aerospace, marine and land systems businesses are heavily dependent on the economy. During a recession people tend to travel less which means airlines must services planes less frequently, marine companies cut back on capital expenditures and land systems investments also reduce. All this means that St Engineering is dependent on the economy doing well if it wants to do well.

Valuation

St Engineering currently trades at a Price to Earnings (P/E) ratio of 24.7 and spots a 4% dividend yield for its investors. Both metrics are higher when compared to its five-year average of 20.9 P/E ratio and 2.4% dividend yield.

Investor Relations

Investor Relation Material:

Top Shareholders (December 2016)

  1. Temasek Holdings (Private) Limited 49.99%
  2. Citibank Nominees Singapore Pte Ltd 10.45%
  3. Dbs Nominees (Private) Limited 9.99%

Financials

Income Statement

Balance Sheet

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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Ketz’s personal capacity. It does not in any way represent those of his employer and other related entities. Ketz does not own any companies mentioned.

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