ST Engineering growth pinned on US defence contract win

Its participation in the US Marine Corps program could help it clinch a lucrative 700-vehicle order.

More than the potential profits, the contract win will be the largest foreign military vehicle contract yet for ST Engineering, which will lift its reputation as a global defence manufacturer and help attract more deals.

Here's more from PhillipCapital:

What is the news? STE announced various contract wins over the quarter worth at least c.S$1.8bn (Electronic: S$100mn; Aerospace: S$728mn; Land System: S$58mn; Marine: S$955mn). The largest contract win in the quarter is worth S$880mn for the design, construction and logistical support for 4 Patrol Vessels that is awarded by the Royal Navy of Oman. The Group also announced its participation in the US Marine Corps Marine Personnel Carrier (MPC) programme that calls for production of up to 700 vehicles (c.100units/yr for up to 7yrs). STE also formed a JV with Kockums, a Swedish naval specialist, for the support of RSN’s fleet of submarine.

How do we view this? We view these developments positively and expect STE’s current order book to surpass its previous high of S$12.3bn, after including the contracts announced. If awarded, the MPC contract could easily be one of the largest defence contracts awarded to the Group by a foreign military and would lift STE’s reputation in the global defence arena. The most comparable foreign military vehicle contract was awarded by the UK MOD in 2008, worth S$330mn for more than 100 vehicles. While developments are still preliminary, we expect potential award of the US MPC contract in the future to be a key catalyst to the stock.

Contracts announced worth S$1.8bn YTD Order book could surpass previous high. Potential award of contract, under the US MPC programme, could be the largest foreign military vehicle contract for STE.

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