Why Singapore Technologies Engineering Ltd Could be A Resilient Company

Singapore Technologies Engineering Ltd  (SGX: S63) is a company with its fingers in many pies. This trait could well be a source of resilience for the company.

Singapore Technologies Engineering, or ST Engineering for short, has four major business segments, namely Aerospace, Electronics, Land Systems, and Marine. This segments are in turn involved with a variety of sectors including defence, information communication technologies (ICT), and global maintenance, repair, and overhaul (MRO).

Strength in diversity

In a recent earnings briefing for ST Engineering’s 2015 fourth-quarter earnings, Tan Pheng Hock, the company’s chief executive, had made a case for the resilience of his company.

For some, 2015 may be considered a mixed bag for ST Engineering. The slide below from the company shows the revenue performance of its different segments. You can see that the Marine segment had suffered a revenue decline which was mostly offset by higher revenue from the Electronics and Aerospace segments.

2016-03-12 ST Engineering Segment
Source: ST Engineering’s earnings presentation

Tan, though, may beg to differ about the results being a mixed bag. He shared his own perspective on this:

“I think if you look at full year 2015 results, taking into consideration the difficult economic climate – it’s not going to get any better – I think it shows the strength of the group in terms of the diversity in the core businesses, in terms of geographical spread, I think that has helped us. For example, our US operations is 24% of our business. And also the mix of defence and non-defence, plus global customer base.”

Tan makes a point here. ST Engineering makes close to 40% of its sales from outside of Singapore, as shown in the following slide:

2016-03-12 ST Engineering Geography Slides
Source: ST Engineering’s earnings presentation

Tan added on to his earlier comments on why this makes ST Engineering resilient:

“And today, if I may say, we are the partner of choice. Unlike the days when we first started international business. Partner of choice meaning you get people like AirBus, for example and many other companies, American or European, wanting to work with us. Unlike the days where we had to look for partners.

So, I think that has helped the group be more robust, more resilient – and I think this is reflected in the results that you saw today.”

Among the achievements of the Aerospace segment in 2015 was the partnership with AirBus for the A320/A321 passenger-to-freighter (P2F) conversion. In this deal, ST Engineering took up an equity stake in Elbe Flugzeugwerker GmbH (EFW) alongside AirBus. At the time of the agreement, EFW had converted more than 190 freighter aircraft for 39 customers globally.

Deals like these might provide a future stream of income for ST Engineering and, as Tan might argue, make the company more resilient via an increase in the sources of revenue.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.