STEng – CIMB

Loading up on contracts

S$434m contracts for Marine, Aerospace and Land Systems

ST Engineering’s Aerospace, Land and Marine divisions have secured five contracts worth a total of S$434m.

S$232m (US$160m) contract extension from a UK airline. The contract is awarded by UK-based Flybe to ST Aerospace Solutions (Europe) to support component maintenance and management requirement of Flybe’s Bombardier Dash 8 Q400 aircraft, in addition to the current Q400 fleet. The new contract includes additional aircraft and an extension of the existing contract till 2016.

S$87m contract for engine maintenance from a South Africa airline, Comair, for comprehensive engine maintenance and engineering support of the airline’s 20 CFM 56-3 engines for eight years.

Two contracts for Land Systems worth S$87.3m. The first contract of S$44.8m (US$32m) was awarded by a Middle Eastern customer for the supply of Land Systems’ patented 120mm super rapid advanced mortar systems with delivery scheduled for 2011. The second contract of S$42.5m was awarded by the UK Ministry of Defence for the supply of 40mm ammunition. Delivery is slated for 2009.

S$28m contract for Marine division from Norway-based Waveship AS, for outfitting work on its seismic research vessels. Delivery is expected in 2H08.

Fantastic order wins in February. The ST Engineering group has clinched new contracts worth about S$560m for all divisions in the month of February.

Valuation and recommendation

Maintain Neutral and target price of S$4.36, still based on a blending of 20x CY09 EPS, DCF value of S$4.64 (WACC of 7.8%), dividend yield of 4.5% and DDM valuation of S$4.01. Our earnings estimates remain unchanged and we continue to be wary of the outlook of the US economy which could potentially hurt ST Engineering’s Land Systems and Electronics operations in the US.

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