Clear skies ahead: ST Engineering to score from US airline capacity rebound
The Singaporean firm has a large aircraft maintenance presence in the United States.
ST Engineering has a lot to benefit from the improvement in US airlines’ seat capacity, which recovered just 10% lower than pre-pandemic levels on 28 June, according to UOB Kay Hian.
“STE has a large aircraft maintenance presence in the US and counts the big US airlines as customers. Airlines are required to fulfil regulatory maintenance after extended downtime, prior to return to service checks. This should benefit STE’s airframe maintenance business as well as their component and engine repair businesses,” the brokerage firm said in a report.
With the third-highest rate of vaccinations, the US could potentially achieve herd immunity in the next four months.
UOB Kay Hian expects ST Engineering's aerospace division to lead in earnings recovery, followed by the electronics division.
“We had already modelled in recovery in aerospace revenue for 2H21, underpinned by higher aircraft maintenance as well as higher pax to freighter conversions. We believe that STE is also likely to guide on the positive macro outlook for the aircraft maintenance sector in the upcoming interim results,” it said.
ST Engineering’s electronic division’s commitment to providing hub systems in Mexico to connect communities and businesses, and partnership with Intelstat to improve broadband services in the Philippines, also bode well for the company’s earnings recovery, UOB Kay Hian added.