In Q1 alone, the firm scored $2.1b in new contracts for the aerospace and electronics segments.
Singapore Technologies Engineering’s (ST Engineering) orderbook recognition for the next three quarters is expected to rise 31% with an estimated $4.2b worth of contracts to be delivered over the coming months, highlighting a sustained growth trajectory for the firm, according to a report by UOB Kay Hian (UOBKH).
The firm announced a combined value of $2.1b new contracts for the aerospace and electronics sectors in Q1 2019, of which $1.3b was from the aerospace sector for services ranging from a 10-year heavy maintenance support for a major North American operator’s entire fleet of A300s and Boeing 757 and component support for new African and European airline customers. The electronics sector received $818m worth of contracts from global customers for its mobility, satellite communications, Internet of Things, cybersecurity, public safety and security, and defence solutions.
As at end-March 2019, ST Engineering’s orderbook grew 6.8% QoQ to $14.1b, UOB’s analyst K Ajith highlighted.
ST Engineering’s started 2019 on a high note after profits jumped 11% YoY to $131.1m in Q1 from $117.7m in 2018, thanks to a 6% profit boost from the aerospace sector and an earnings recovery from its marine division, its financial statement revealed. Revenue also edged up 5% YoY from $1.65b to $1.73b.
In addition to the new wins, its land systems sector hit a major milestone with its first seaport contract to supply 80 automated guided vehicles to Singapore’s container port operator, PSA Corporation.
The firm is also ramping up to fulfil an order for Polar Security Cutter (PSC) for the US Coast Guard. The initial contract was for one PSC worth $1b, with an option to exercise two more contracts. The option for the contracts will expire in 2023.
“We believe that the odds of the US Coast Guard exercising the option are high, given heightened competition from other navies. The initial PSC will be delivered in 2024 and if options are exercised, then the delivery for the second and third vessels will be in 2025 and 2027, respectively,” Ajith noted. The contracts have a cumulative value of $2.6b.
ST Engineering highlighted that billing will be on milestone completion and that it expects to recognise revenue starting from 2021.
According to DBS Equity Research’s analyst Suvro Sarkar, ST Engineering will have to invest in expanding its engineering workforce and US shipyard capabilities in preparation for construction in the near-term.
“However, as per the contract, ST Engineering can begin billing during the 18-month detailed design and planning phase (prior to the start of fabrication), to offset the imminent cash outlays,” he said.
Overall, the polar contract is expected to be earnings accretive, despite the complexity of the project. “We view the odds of a cost overrun on the project to be low, as ST Engineering not only went through a comprehensive process to estimate the costs of the project, but also included a decent buffer to arrive at its final bid price. According to management, ST Engineering worked together with design firm Technology Associates Inc, along with leading experts from various countries, and concluded 18 months of design studies prior to the submission of its bid,” Sarkar highlighted.
The approved ship design is based off the Polar Stern ll, which is the most modern icebreaker on the market, and is nearing completion in Germany. During the study, the team incrementally refined the design, and performed multiple design iterations and a series of five ship model tank tests to optimise the design, DBS noted.
“Furthermore, ST Engineering has established a team with extensive experience, comprising of in-house experts, experts from the German shipyard and supply chain partners to support the Polar Security Program. This will strengthen project execution, and also help keep costs in check,” Sarkar commented.
Do you know more about this story? Contact us anonymously through this link.