STE's Commercial Aerospace Activities Continue its Pandemic Recovery, FVE Is Unchanged

The coronavirus impact aside, Singapore Technologies Engineering, or STE, is driving growth through improved utilization of its capital alongside a plan to contain costs. It has sold noncore activities to focus on areas that will provide synergies to its key aircraft maintenance and smart city activities. In this regard, it is adding proprietary product makers to its stable. Overall, we see STE’s EPS growing a five-year compound annual growth rate of 9.3%, marking an improvement over the 2.7% pre-pandemic 10-year average, which reflects the pandemic recovery as well as the pending completion of its purchase of U.S. toll road services provider, TransCore. We think STE has managed pandemic risks well given its diverse portfolio that helped offset SGD 1 billion in contract cancellations. We expect STE to rebound along with the travel industry in the next 24 months, and STE's mid-term outlook remains positive.