• Reiterate BUY and SGD5 TP (12% upside), c.4% yield. ST Engineering won a contract of undisclosed value to provide its enhanced Passenger Information System (PIS) for 65 new 6-car passenger trains in Australia. In collaboration with MAN Bus, STE also launched a single-deck electric bus, which could become one of the options for the Land Transport Authority’s (LTA) plans to have half of Singapore’s 6,000 public buses run on electricity by 2030. We remain optimistic of STE delivering a mid-teen earnings CAGR in 2023-2026.

• New contract win “Down Under”. STE’s Urban Solution & Satcom (USS) business secured a contract to provide its enhanced PIS for 65 new 6-car passenger trains in Australia as part of the Queensland Train Manufacturing Programme (QTMP). As per the website, the Queensland government has committed AUD9.5bn for the QTMP. While the order value was not disclosed, STE noted that the contracted scope has commenced and is expected to be completed in 1Q30. The contract marks STE's largest international PIS order win to date. PIS includes the train traveller information system, passenger announcement and communications system, and train-borne wireless system.

• New electric bus. STE, the exclusive importer and distributor of MAN Bus in Singapore, launched MAN Lion’s City E, a single-deck electric bus, on 29 Aug. The bus offers innovative advanced driver assistance system technology and a c.480 kWh battery capacity, which is one of the highest among single-deck electric buses in Singapore. The LTA plans to have half of Singapore’s 6,000 public buses run on electricity by 2030, and have all public buses run on cleaner energy by 2040. As part of the first large-scale award of contracts for new electric buses in Nov 2023, LTA ordered 360 new electric buses worth SGD166.4m from BYD and Cycle & Carriage through a tendering process. STE previously supplied 20 single-deck electric buses as part of LTA’s first small-scale electric bus tender in Dec 2017.

• Strong growth outlook. STE’s record order backlog of SGD27.9bn offers close to three years of revenue visibility. Continued demand for aviation MRO work, higher aircraft engine nacelle deliveries, and improving margins for its passenger-to-freighter (PTF) conversions should drive the Commercial Aerospace (CA) business profit higher. The right-sizing and cost optimisation exercises for the USS segment undertaken in 2023 should boost EBIT in the coming years. We expect growth in the Defence & Public Security (DPS) segment to sustain, as the group continues to deliver the orderbook. Our TP includes a 4% ESG premium over the fair value of SGD4.81.

Source: RHB Research - 2 Sep 2024