ST Engineering urged to tap M&A potential with $500m cash hoard

Experts say merging with SIA could prove lucrative.

With oil prices dipping and optimism for US and Asian airlines rising, analysts say M&As could lead the integrated engineering group to striking gold.

Analysts say ST Engineering could secure constant, robust growth in the future by making use of its balance sheet more efficiently through ROE and EPS-accretive acquisitions.

“The aerospace business’ investments into cabin interiors and VIP completions and configurations business in the US, as well as new partnerships with OEMs across the value chain, create new avenues for growth amidst a broadly stable industry environment,” a report from DBS said.

Meanwhile, structural changes for the aircraft MRO industry remains a threat for the future development of the engineering group, as newer airframe and engines reduce maintenance costs.

“Also, continued lack of action on the M&A front could lead to inefficient use of balance sheet and lower ROEs in the future,” the report said.

“ST Engineering’s orderbook of S$12.2bn as of end-1Q15 provides good visibility on revenues and underpins our steady c.6% growth in earnings over FY15/16,” the report added.