ST Engineering – Growing smart city presence

Excerpts from CGS International report

Singapore Technologies Engineering (SGX: S63)

• ST Engineering clinched a S$60m smart city contract in Qatar. While the contract size is small, we are positive on future potential wins in the Middle East region.
• For its business update on 18 Nov 2024, we preview 3Q24F revenue to come in at S$2.75-2.79bn (+13-15% yoy), largely in line with consensus figures.

Reiterate Add. Our TP is unchanged at S$5.30, based on 20x CY25F P/E

S$60m smart city contract clinched in Qatar

ST Engineering announced today (14 Oct 2024) the clinching of a c.S$60m contract from Lusail Real Estate Development Company, a subsidiary of Qatari Diar (unlisted). The contract entails the design, build and operation of a smart city platform for Lusail City, Qatar. ST Engineering estimates the project to commence in 4Q24F and conclude by 2027F. ST Engineering will be mainly providing its Urban Solution’s AGIL Smart City Operating System, a system powered by artificial intelligence (AI), machine learning, and data analytics. The system will be used to integrate a diverse range of smart city solutions (across various sectors such as lighting, building, and traffic management) to provide insights into Lusail city’s operations. While the contract value is small relative to group revenue, we view the contract win positively as successful execution could pave the way for future larger contracts in the Middle East. Recall that ST Engineering has been steadily ramping up its Middle East contract wins over the past few quarters; notable wins include a smart carpark contract in Dubai as well as various international defence contracts. In addition, we understand that STE is working hard to win tolling contracts in Asia. Large contract wins in this space could be a key re-rating catalyst, as this presents TransCore (tolling subsidiary, forms c.10% of FY24F revenue by our estimate) with a longer-term growth runway, we think.

3Q24F: expecting double-digit topline growth yoy

We expect STE to report its 3Q24F business update on 18 Nov 2024. No financials will be shared except for revenue. We preview 3Q24F revenue to come in at S$2.75-2.79bn (+13-15% yoy, flattish qoq), largely in line with Bloomberg consensus. We believe Commercial Aerospace and Defence are the key revenue drivers for 3Q24F, with both segments up c.15% yoy by our estimates.

Reiterate Add with an unchanged TP of S$5.30

Reiterate Add. We continue to like STE as we see industry tailwinds driving both Aerospace and Defence, supporting our FY24-27F core EPS CAGR of c.15%. Our target price remains at S$5.30, still based on 20x CY25F P/E (10-year average). Re-rating catalysts: large defence contract wins and large tolling contract wins in Asia. Downside risks: economic slowdown affecting order wins and Aerospace activities.

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