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Making Sense Of Singapore Technologies Engineering Ltd’s Business

The aptly-named Singapore-based engineering outfit Singapore Technologies Engineering Ltd (SGX: S63) has four main business segments: Aerospace; Electronics; Land Systems; and Marine.

Unlike other companies which may be involved with just one or two simple businesses – for instance, SMRT Corporation Ltd (SGX: S53) runs buses, trains, and taxis – some investors may find ST Engineering’s many-fingers-in-the-pie model tougher to understand. To help with that, I’d be breaking down each of ST Engineering’s business segments.

1. Aerospace

ST Engineering provides five main services under its Aerospace segment. The company is able to maintain and modify aircrafts and provides support to all aircraft components including engines. The company also provides training services as well as parts engineering and manufacturing services.

With its Aerospace segment, ST Engineering is actually the world’s largest airframe maintenance, repair, and overhaul (MRO) service provider. For some background, the term”airframe” can be understood as the mechanical structure (i.e. fuselages, wings, and undercarriages; the engine’s not included) of an aircraft. ST Engineering provides MRO services to both commercial and military aircrafts; the budget carrier Jetstar Asia and the Republic of Singapore Air Force are some of ST Engineering’s clientele. To a certain extent, ST Engineering’s Aerospace segment can be considered as a competitor to SIA Engineering Company Limited (SGX: S59).

Aerospace is the largest revenue and profit contributor to ST Engineering’s overall top- and bottom-line; in 2013, the Aerospace segment made up 31% and 45% of the company’s total revenue and net profit respectively.

2. Electronics

ST Engineering’s Electronics segment is further grouped into three sub-segments: Satellite and Broadband Communication; Transportation Systems and Solutions; and Advanced Electronics and Information Communications. Examples of the kinds of services and products that this segment provides includes traffic management systems, fleet management systems, e-government systems, and weapon electro-optic systems.

Electronics is the second largest segment for ST Engineering. In 2013, the segment made up 25% of the company’s revenue and 24% of profit.

3. Land Systems

Moving on to Land Systems, the segment is the third largest with a 22% contribution to ST Engineering’s total revenue in 2013. It also took up a 16% share of the company’s profit.

This segment provides most of its services through its subsidiary, ST Kinetics. A large portion of Land Systems’ business comes from providing military-related services. For instance, this segment manufactures light military vehicles such as the Light Strike Vehicle Mk II which are used by the Singapore Armed Forces. The company also distributes commercial vehicles such as MAN-branded buses to SMRT.

4. Marine

Lastly, we’re down to ST Engineering’s smallest segment, Marine. This segment operates a shipyard which provides shipbuilding, ship conversion, and ship repair services both in the defense and commercial sectors. Although ST Engineering’s Marine segment sounds almost similar to Sembcorp Marine Ltd (SGX: S51), they can only be considered as partial competitors;  that’s because the former has not ventured into the oil & gas space unlike the latter.

In 2013, this segment made up 19% of both ST Engineering’s revenue and profit.

Foolish Summary

If we break down ST Engineering’s business by each of its segments, it is actually quite understandable. However, when we have to analyse the company as a whole and how each segment will perform over time and relative to each other, that might be where thing can get hairy.

That said, ST Engineering’s transparent disclosures and deep business insights given in its annual reports has made it quite possible for investors to gain a good grasp of what the company’s all about.

A nice big picture overview of how ST Engineering is growing can also come from the changes in its order book. In 2000, ST Engineering’s order book stood at S$5.1 billion. Although there were some slight ups-and-downs over the years, ST Engineering’s order book has for the most part, grown steadily, ending the third quarter of 2014 at S$13.2 billion. This is what has helped ST Engineering’s revenue to nearly triple from S$2.26 billion in 2000 to S$6.63 billion over the last 12 months. Along the way, the firm’s profits have also nearly doubled from S$288 million to S$559 million.

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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 Stanley Lim does not own any companies mentioned above