It’s been a tough 18 months for Singapore Technologies Engineering (SGX: S63), or STE.
COVID-19 had impacted air travel and maritime activity and adversely affected 40% of the group’s business.
As a result, STE has seen three out of four of its 2022 targets delayed by one to two years.
Those financial goals were laid down during its 2018 Investor Day, and these objectives have now been refreshed as STE embarks on a new five-year plan.
The engineering specialist now aims to grow its annual revenue at two to three times the global GDP rate to hit more than S$11 billion by 2026.
Recall that the seeds of this growth had already been planted late last year as STE reorganised itself to streamline its group structure.
Here are five highlights from STE’s recent Investor Day presentation.
1. Boosting the commercial aerospace arm
STE is well-poised to ride the recovery in air travel for its commercial aerospace division.
The maintenance, repairs and overhaul (MRO) sub-division intends to expand its capabilities and capacity to ride on this anticipated recovery.
In terms of expectations, the conglomerate is projecting a recovery to 2019 air travel levels by 2023 for domestic travel and 2024 for international travel.
And in the long term, STE sees healthy demand for air travel, cargo and MRO in the next two decades.
Both passenger traffic and air cargo are expected to grow at 4% per annum during this period, while the MRO market should see a 5.9% growth per year to reach US$115 billion by 2030.
The group will execute its leasing strategy to go asset-light, with plans to double its asset management assets under management (AUM) to US$2 billion by 2026.
2. Growth in smart cities
Smart cities are another strong area of growth for STE.
This trend is driven by urbanisation, digitalisation and sustainability, and the market for smart cities is estimated to grow to around US$500 billion in five years.
To this end, the group is building up new capabilities through strategic acquisitions since 2017, with the latest being the purchase of TransCore for close to US$2.7 billion.
STE’s new goal is to more than double its smart city revenue from 2020 to 2026.
The company’s initiatives are varied, ranging from becoming a smart mobility market leader, providing scalable security platforms enabled by 5G technology and artificial intelligence, and offering cloud management platforms and services for enterprise applications.
3. Investing in digitalisation
STE intends to consistently invest around 4% to 5% of its revenue in research and development annually.
Of this budget, around three-quarters will be in digital technologies such as advanced networks, cybersecurity and robotics & autonomous technologies.
By doing so, the group hopes to enhance its product offerings and solutions while also saving on expenses and improving productivity.
These investments can also help STE to drive growth in digital businesses such as cloud computing and analytics.
4. A focus on sustainability
STE has always had sustainability at the core of its business.
The conglomerate’s products and solutions have this goal in mind and the group is a strong advocate for ESG practices.
For the commercial aerospace division, there are plans to convert passenger aircraft to freighters to extend their useful lives.
Automation will also be used to increase productivity and reduce material consumption.
Meanwhile, its Marine sub-division is exploring the design and manufacturing of “green ships” that have lower greenhouse gas (GHG) emissions and higher energy efficiency.
Smart maintenance systems also increase ships’ availability and enable maintenance flexibility.
As a group, STE’s target is to reduce its GHG output by 50% by 2030.
5. Opportunities for international defence
Finally, STE’s defence and public security (DPS) division sees healthy growth prospects.
Its major lines of business include land systems (munition and robotics) and defence aerospace.
The group has identified a total addressable market of around US$5 billion over the next five years.
The market will be driven by trends such as military transformation (tapping on innovation technologies) and the upgrade and replacement of platforms.
Opportunities identified include a strong defence budget in the US where spending should remain high, as well as the Middle East leveraging on Singapore to build up their local defence industry.
Get Smart: Ambitious targets
STE has set itself some ambitious targets for 2026.
The blue-chip engineering group is on the right track to achieve these goals if its current momentum can be sustained.
CEO Vincent Chong remarked that STE’s transformation has enabled the group to become more resilient.
It had divested 12 business units in the last three years and strengthened its branding and digital capabilities.
Return on equity was also maintained above 20% despite the onset of the pandemic.
In addition, the group’s order book has also been steadily growing since 2016, jumping from S$11.6 billion to S$18.2 billion as of 30 September 2021.
Investors need to be patient, but it appears that STE is firmly on track to achieve its objectives.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
