5 reasons why ST Engineering's aerospace arm has robust outlook

It accounts for 44% of group PATMI.

According to OSK DMG, the Singapore market has been sold down recently, with the STI correcting some 8% since late May. More notably, the S-REIT sector has slipped 16% over the same period, sparked by fears of interest rate hikes.

Analysts believe yield-seeking investors would be flocking to defensive industrial counters such as STE, which also provides an appealing 4.4% yield and would be less affected by rising interest rates given its net cash position.

Here's more from OSK DMG:

Investors are increasingly seeking defensive stocks with strong cash flow. STE is a defensive counter given its: i) track record of resilient earnings, ii) diversified business model, and iii) mix of government and commercial businesses. We see the company, with its historical 10-year earnings CAGR of 5%, chalking up 4.1% earnings CAGR over the next five years. STE’s defensive nature will reinforce its ability to maintain its dividend payout.

Aerospace segment outlook buoyant. STE’s largest segment, aerospace, accounted for 32% and 44% of 2012 group topline and PATMI respectively. This segment’s outlook is robust, with i) a global passenger CAGR of 5.0% from 2012-16, ii) cargo growth CAGR of 4.2% from 2012-16, iii) 10-year aircraft fleet CAGR of 3.8% till 2023, iv) 10-year maintenance, repair and overhaul (MRO) expenditure CAGR of 3.1% till 2023, and v) demand for 1,793 converted freight aircraft over the next 20 years.