The rally in the Straits Times Index (SGX: ^STI) caught many investors by surprise.
With interest rates poised to head lower, the three local banks were expected to take a hit but their share prices have stayed resilient and even moved up to hit all-time highs.
Another blue-chip stock that recently hit its all-time high is Singapore Technologies Engineering (SGX: S63), or STE.
The engineering giant saw its share price hit a high of S$4.78 recently and is up around 20% year-to-date.
Can STE continue to do well moving forward and see its share price hit new highs? Let’s find out.
A strong set of earnings
The group reported a robust set of earnings for the first half of 2024 (1H 2024).
Revenue rose 13.5% year on year to S$5.5 billion with operating profit jumping 17.7% year on year to S$522.9 million.
Even though finance costs rose nearly 15% year on year to S$106.5 million, STE’s net profit managed to climb nearly 20% year on year to S$336.5 million.
The engineering firm also generated a positive free cash flow of S$523 million for 1H 2024, in line with the S$521.1 million churned out in the previous corresponding period.
The good news is that all three of STE’s divisions enjoyed healthy year-on-year revenue growth.
Commercial Aerospace (CA) division’s revenue jumped 20% year on year to S$2.2 billion, aided by the recovery in the aviation sector.
Defence & Public Security (DPS) segment saw its revenue rise 12% year on year to S$2.4 billion and Urban Solutions & Satcom (USS) division’s revenue inched up 3% year on year to S$918 million.
STE paid out an interim dividend of S$0.04 for the quarter, bringing 1H 2024’s dividend to S$0.08.
The engineering group’s trailing 12-month dividend stood at S$0.16, giving its shares a trailing dividend yield of 3.4%.
Growing its order book
Over the years, STE has been steadily growing its order book.
Investors should see this as an encouraging sign that the business is consistently growing as a higher order book will translate into increased revenue and profits.
For 1H 2024, the group secured a total of S$6.1 billion in new contracts, taking its order book to S$27.9 billion as of 30 June 2024.
Of the S$6.1 billion, the bulk went to DPS (S$2.6 billion), S$2.1 billion went to the CA division, while the remaining S$1.4 billion was for USS.
Management expects S$4.9 billion to be delivered for the remainder of 2024.
This level of order book is slightly higher than the S$27.4 billion reported by the group at the end of last year.
It was also a steady climb from the S$19.3 billion in 2021 and S$23 billion in 2022.
Opportunities amid favourable tailwinds
Looking ahead, STE has ample opportunities to grow its business and has announced encouraging business developments.
In the middle of September, the group opened a new 14-hectare high-tech shipyard in Gul Road to replace its Tuas yard.
Twice the size of its previous yard, this new yard is equipped with the latest technology that can detect equipment failure and hazards.
It can also handle larger and more complex projects with increased efficiency and precision.
CEO Vincent Chong expects these new technologies to increase productivity by 20%.
Also in September, STE partnered with Royal Philips (NYSE: PHG) to offer complementary digital health solutions for bedside support and capacity management.
Earlier this month, STE’s CA division inked a 15-year exclusive maintenance, repair and overhaul (MRO) contract with Akasa Air, India’s fastest-growing airline.
The engineering giant will provide MRO solutions for LEAP-1B engines that power the airline’s Boeing 737 MAX fleet.
This contract win follows the CA division’s successful two-year offload agreement with Safran Aircraft Engines back in July.
Refreshed mid-term targets
Vincent Chong reiterated that STE recently refreshed its mid-term, five-year targets for 2022 to 2026.
One area that shows good promise is urban solutions and smart mobility, which is handled by STE’s recently-acquired TransCore.
Over in the CA division, STE is now the world’s largest independent airframe MRO provider across its facilities in Singapore, China, and the US.
The segment includes the manufacture of nacelles (housing for aircraft parts) as well as the conversion of retired passenger aircraft to freighters (PTF).
STE has performed over 500 PTF conversions over the last 30 years and Chong expects revenue from this business to hit S$700 million by 2026.
New hangars have been opened in China, the US, and Singapore to cater to increased business volume.
A key target is for STE to hit S$11 billion in annual revenue by 2026.
Already, 1H 2024 showed that the group is well on its way as revenue hit S$5.5 billion, and the engineering group has the potential to achieve this objective earlier than expected.
Get Smart: The future looks bright
2025 will see STE host an Investor Day where the group will review and refresh its targets and communicate the next phase of its growth plan.
Meanwhile, the group will continue to invest more in research and development to hone its capabilities and equip itself with the skills and competencies to handle larger projects.
The future looks bright for STE as the group grows its top and bottom lines along with its order book.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
