Singapore Technologies Engineering

Excerpts from UOBKayHian report

Singapore Technologies Engineering (SGX: S63)

• Singapore Technologies Engineering 3Q24/9M24 revenue of S$2.78b/S$8.30b was in line with our expectations, forming 25%/74% of our 2024 full-year forecast.
• 3Q24 group revenue rose 14% yoy, driven by revenue growth in DPS (+31%, backed by strong demand) and CA (+7%). USS posted a 5% yoy revenue drop in 3Q24 as Satcom is still undergoing transformation.
• Orderbook remained strong at S$26.9b as of end-3Q24. Management is confident about ending 2024 with a strong performance.

Maintain BUY. Target price: S$4.95.

3Q24 results

Singapore Technologies Engineering’s (STE) 3Q24 revenue of S$2.78b (+14% yoy, -1% qoq) was in line with our expectations, at 25% of our full-year forecast. 9M24 revenue of S$8.30b (+14% yoy) stood at 74%. Segmental revenue performance was more mixed.

• Defence & public security (DPS). 3Q24 DPS revenue of S$1.27b (+31% yoy, +2% qoq) came in slightly above our expectations, with 9M24 revenue of S$3.64b (+18% yoy) forming 77% of our full-year forecasts. DPS has seen revenue growth across all subsegments on the back of strong demand.
• Commercial aerospace (CA). 3Q24 CA revenue of S$1.05b (+7% yoy, -2% qoq) was slightly weaker than expected, with 9M24 revenue of S$3.29b (+16% yoy) forming 73% of our full-year forecast. The passenger-aircraft-to-freighter conversation (P2F) segment faced some challenges due to aircraft feedstock constraints, but its revenue impact on the overall CA revenue was largely offset by the MRO sub-segment’s strong revenue delivery.
• Urban solutions & satcom (USS). 3Q24 USS revenue of S$455m (-5% yoy, -7% qoq) was slightly behind our projections, with 9M24 revenue of S$1.37b (+0.3% yoy) forming 70% of our full-year projections. In 9M24, revenue growth at the urban solutions subsegment (including TransCore) was largely offset by lower Satcom revenue.

Orderbook dipped slightly qoq, partly due to forex translation

Singapore Technologies Engineering orderbook of S$26.9b at end-3Q24 came off the record-high S$27.9b a quarter ago. Management noted that about half of the qoq dip was attributable to forex translation from a sharp depreciation of USD against SGD in 3Q24. On a same currency basis, STE’s orderbook as of end-3Q24 would have been comparable to that at end-23. STE guided for S$2.6b worth of contracts to be delivered in 4Q24, slightly higher than the S$2.5b contract delivery guidance a year ago for 4Q23.

Healthy contract wins

Singapore Technologies Engineering secured S$2.2b worth of new contracts in 3Q24, contributed by contract wins across all three segments (CA: S$0.94b, DPS: S$0.75b, USS: S$0.47b). Note that the reported 3Q24 contract win figure has yet to include a sizeable US$1.73b New Jersey tolling system back-office project. TransCore won the bid and was selected by the New Jersey Turnpike Authority to install and operate the state’s tolling system back-office functions for a total contract period of 11 years. However, as the incumbent operator who lost the contract to TransCore filed a protest against the authority, STE has not included this project in its reported orderbook figure for the sake of prudence.

Valuation/Recommendation

Maintain BUY and target price of S$4.95. Our target price is based on 20.7x 2026F PE, pegged to STE’s historical mean PE. Share price catalysts include organic core earnings growth and monetisation of non-core businesses and paring down of debt.

You can find the full report here and the company website here.