ST Engineering defence contracts driving its robust outlook

From US Coast Guard to Singapore Navy.

Maybank Kim Eng notes that ST Engineering is in the running for a massive $10 billion contract from the US Coast Guard and has recently clinched a still-undisclosed Singapore Navy vessels contract which could be its largest to date since 2008.

These positive defence contract news are driving its current premium valuations and rosy company outlook.

Here's more from Maybank:

Worth the premium valuations, BUY. ST Engineering (STE) is in the running for a major contract from the US Coast Guard (USCG), which could be worth c.USD10b. This could be announced as early as 3Q13. If it succeeds, it will validate its long-term presence in the US, where its subsidiary VT Halter Marine has been operating for the last decade. Closer to home, a recent Singapore Navy patrol vessel contract could be its biggest since 2008. Despite premium valuations, its defence and commercial-driven record order book (SGD13b) along with potential catalysts in the form of a major billion-dollar contract continue to justify a BUY rating. As a heuristic gauge of the stock’s valuation, STE trades at an undemanding market capitalisation-to-order ratio of 1.0x, which is below its market cycle average of 1.2x. Our target price of SGD4.80 is based on 23x blended FY13/14 PER.

Potential near-term catalyst in USD10b USCG contract. ST Engineering’s US shipyard VT Halter Marine (VTHM) is currently bidding for the design and construction of 25 offshore patrol cutters for the USCG, which could be worth c.USD10bn. If it succeeds, this will be a major catalyst for the stock. The original schedule from the USCG suggests the preliminary contract could be awarded as soon as this quarter.

Singapore Navy patrol vessel contract likely to be the biggest deal in years. Clinched in Jan 2013, a Republic of Singapore Navy (RSN) contract for eight new patrol vessels could be its largest since the frigate programme of 2002/08. While the contract value is top secret, STE is a beneficiary of the continued outsourcing and rising use of technology in Singapore’s small, but technologically-advanced armed forces.

Major freighter conversion opportunity. ST Aerospace’s recentlyacquired 35% stake in EADS EFW, a Centre of Excellence for freighter conversions, is meant to leverage on its years of experience in passenger-to-freighter (PTF) conversions. It plans to develop a conversion package for two versions of converted freighters – A330-200P2F and A330-300P2F – where there is a major market opportunity, as Airbus estimates that 847 mid-sized aircraft would be converted into freighters over the next 20 years.

If you've been wondering whether SBR could work for your company — yes, probably.

A lot of the companies we partner with started as readers. They'd been following our coverage for a while, saw their own customers and competitors in it, and eventually asked the obvious question: could we do something with you? The answer is usually yes. The shape of it depends on what you're trying to do.

The options are broader than most people assume — thought leadership articles, sponsored content, industry summits across Southeast Asia, regional awards programmes, podcasts, and media placements in print and digital. Some partners use one channel; most use a mix. We figure out the right combination by starting with your brief, not with our rate card.

So if the question has been on your mind, here's the easy way to ask it.

We'll tell you honestly whether we can help, and how. It's a better use of everyone's time.

Book a meeting

| Or download the media kit (PDF)

240,000 senior readers quarterly in print Top 1,700 Singapore companies reached

7 markets across Southeast Asia