ST Engineering’s profit to grow up to 17% in 2023-2024: RHB

Thanks to the company’s strong order book.

ST Engineering is expected to see a 13% to 17% profit growth in 2023-2024 on the back of a strong order book, according to RHB.

In a report, RHB said the company’s strong recovery in its Urban Solutions & Satcom Security unit together with strong improvement in the Defence & Public Security unit will boost earnings growth.

ST Engineering reported its highest order backlog of $22.2b, following the $3.1b worth of new contracts in the second quarter. This implies a book-to-bill ratio of 2.7 years, with $4.6b of the order book expected to be delivered in the second half of the year, representing the full revenue estimates for the period.

The company’s commercial aerospace business’ signing of a five-year component maintenance-by-the-hour contract for the Thai budget carrier Nok Air’s Boeing 737-800 fleet, will also improve the unit’s order book which reportedly reached an average of $930m in order wins quarterly since the first quarter of 2021.

However, RHB said that one of the key concerns of some investors revolves around the “disappointment” in ST Engineering’s recent bottom line during the first half, and the potential for another miss in the second half “amidst a weakening macroeconomic environment.”

“In addition, the rise in STE’s debt levels to fund the TransCore acquisition, especially in a rising interest rate environment, is also getting identified as a concern,” RHB said.

It added that it expects the company’s net debt to equity to gradually improve during the forecast period due to higher earnings and improvement in cashflows, but the estimate remains above 1.5x in 2024.

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