RHB Group Research Shekhar Jaiswal has kept a “buy” rating on ST Engineering with a target price of $4.80.
For 1QFY2022 ended March, ST Engineering reported in-line revenue of $2 billion, some 13% higher y-o-y, with all segments - commercial aerospace (CA), urban solutions & satcoms (USS) and defence & public security - booking growth.
ST Engineering’s CA revenue rose to $674 million, up 22% y-o-y, at 26% of Jaiswal’s FY2022 estimate, while USS revenue increased by 12% y-o-y to $297 million, 23% of the analyst’s 2022 estimate.
Within the CA segment, its airframe maintenance, repair and overhaul (MRO) business has seen an almost full recovery from 80% capacity utilisation in 3QFY2021, while the engines and component MRO is operating at 80% capacity as compared to 70% in 3QFY2021.
Demand for passenger-to-freighter (P2F) services also remains strong – with Airbus A330 (A330) P2F conversion slots booked until 2026 and A320/A321 P2F conversion slots booked until 2025.
“Increasing the scale of operations should boost its P2F profitability, as ST Engineering will double its P2F aircraft induction this year,” says Jaiswal.
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The analyst also expects nacelle production to ramp up for the rest of 2022.
The Defence & Public Security (D&PS) segment’s revenue also rose to $1.1 billion up 9% y-o-y, at 25% of Jaiswal’s 2022 estimate.
Moreover, ST Engineering reported $2.4 billion worth of order wins in 1QFY2022 up 54% y-o-y. This comprised of $900 million from CA, $200 million from USS and $1.3 billion from the D&PS business.
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The CA business continued to see strong order wins with A330 P2F orders by DHL and CDB Aviation.
Additionally, the consolidation of TransCore from March 17 contributed $1.6 billion of orders into ST Engineering’s orderbook, which has now reached a record high of $21.3 billion, implying over two years of revenue visibility.
ST Engineering expects $5.8 billion of the orderbook to be realised as revenue in the last nine months of 2022, which is 94% of the analyst’s revenue estimate.
In addition, ST Engineering issued US$1 billion bonds, with US$700 million due in 2027 and US$300 million due in 2032 and has managed to lower its weighted average cost of borrowing undertaken to acquire TransCore to 1.8% per annum, due to the favourable settlement of Treasure Locks gains of US$91 million, which will be amortised over the period of the bonds.
ST Engineering remains confident of covering up the $200 million gap from the government support shortfall through higher revenue, cost savings and productivity improvements.
“We remain upbeat on it delivering defensive growth, aided by a gradual revival in the aerospace business,” writes the analyst.
As at 11.26am, shares in ST Engineering are trading at 3 cents down or 0.73% lower at $4.06 at a FY2022 P/B ratio of 4.9x and dividend yield of 3.7%.
Photo: TransCore / ST Engineering