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Singapore Technologies Engineering Ltd Secures $1.6 Billion In New Contracts: Why It Is Significant for The Company

It has been a bountiful start to the second quarter of 2017 for Singapore Technologies Engineering Ltd (SGX: S63).

In two separate announcements made last week, the engineering conglomerate reported that it had secured a total of $1.6 billion in new contracts for its aerospace division and its electronics division. For context, ST Engineering recorded $6.68 billion in revenue for 2016 and ended the year with an orderbook of $11.6 billion.

Flying high

Last Monday, ST Aerospace said that it secured $1.11 billion in new contracts in the first quarter of 2017. According to the announcement, the contracts were for services ranging from line to heavy airframe maintenance. There are a few comparisons to show why this new contract win is significant.

In April 2016, ST Aerospace secured $443 million in new contracts. In other words, the new contracts secured had doubled in value compared to the previous year. For another context, ST Aerospace recorded $2.5 billion in revenue in 2016. Its profit before tax (PBT) for the year was around $300 million. As you can see, the value of the new contracts is significant for ST Aerospace.

An electrifying show

ST Electronics reported last Tuesday that it had won $464 million in new contracts.

The new contracts covered a bevy of products and solutions: rail electronics, intelligent transportation, satellite and broadband communications, and advanced electronics and information and technologies solutions.

During the first quarter of 2016, ST Electronics snagged $505 million in new contracts. This year’s bounty may be slightly lower, but it is still significant when compared to the size of the business.

ST Electronics recorded revenue and PBT of $1.9 billion and $208 million, respectively, in 2016.

Putting it together

The new contract wins are important as ST Aerospace and ST Electronics make up a major part of ST Engineering’s overall business.

The two divisions collectively accounted for 65% of ST Engineering’s 2016 revenue and a whopping 86% of total PBT. Furthermore, ST Aerospace and ST Electronics demonstrated the highest PBT margins among the five divisions within ST Engineering in 2016; the former had a PBT margin of 12% while the latter’s PBT margin was 11%.

Furthermore, ST Aerospace and ST Electronics were the only two divisions that showed any growth in sales or profits in 2016. The new contracts could extend their growth in the foreseeable future.

All the figures shared above help to put the $1.6 billion in new contracts won by ST Engineering into perspective.

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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.