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What Does Singapore Technologies Engineering’s Latest Contract Wins Mean for the Company?

Ser Jing - ST Engineering First Quarter Results, Unchanged Revenue and Profit (pic)

Singapore Technologies Engineering (SGX: S63) seems to be zoning in on the right targets. Asia’s largest defence and engineering group had recently won a few contracts for its aerospace sector and also a few more for its electronics arm. The company has business interests in the aerospace, electronics, land systems, and marine sectors.

On Monday, the engineering outfit had made public that its aerospace arm, ST Aerospace, had secured new contracts worth $520 million in the second quarter of 2014. The contracts cover various aspects of the aerospace sector – airframe, component and engine maintenance, freighter conversion, cabin modification, engine wash and pilot training. For an example of the kind of work ST Engineering would embark on, one of the contracts involve a five-year agreement with a regional US airline for heavy maintenance of 42 Embraer E-170 and E-175 aircraft at the aerospace sector’s San Antonio facility.

ST Aerospace is the world’s largest independent aircraft maintenance, repair, and overhaul company. One of its main competitors is SIA Engineering Company (SGX: S59), who predominantly helps maintain the aircrafts of Singapore Airlines (SGX: C6L). All three firms are also part of the Straits Times Index (SGX: ^STI).

Today, ST Engineering’s electronics arm announced that it had won about $580 million worth of contracts for the same period as above. The President of ST Electronics, Lee Fook Sun, said:

“ST Electronics contract wins in 2Q2014 [second quarter of 2014] are from our three key business areas of rail electronics, satellite communications and advanced electronics and ICT. We continue to pursue new opportunities and develop solutions that will benefit growing cities in the areas of transportation, analytics, connectivity and sustainability.”

Out of the S$580 million, the biggest contract is worth around $272 million for rail electronics and traffic management projects in Singapore and elsewhere. The projects involve traffic management maintenance and services for roads, and rail electronics systems such as communications and control, commercial radio, access and maintenance management. The longest project will span nine years.

In 2013, ST Engineering saw its revenue increase 4% to $6.6 billion, as compared to 2012. Meanwhile, net profit was at $580.8 million, a 1% rise over the previous year. Of the $6.6 billion in revenue, the aerospace arm contributed the bulk of with S$2.1 billion. The electronics arm, on the other hand, brought in $1.7 billion in revenue.

Investors in the company might be interested to know that the company’s aerospace and electronics arm had both won much higher contracts in the second quarter of this year as compared to a year ago. In the second quarter of 2013, ST Aerospace had inked S$430 million worth of deals while ST Electronics only clinched S$207 million worth of contracts. Given that present contracts represent future revenue for the company, it’s a good thing for ST Engineering’s business to see larger contracts being signed if profit margins can be maintained.

Shares of ST Engineering closed at $3.76 today and are going at 20 times its historical earnings.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.