Why ST Engineering is still the darling stock of US-based investors

Versus SIAEC and SATS.

According to Maybank Kim Eng, on a recent marketing trip to the US, their analysts shared with clients their views on the Aviation Services sector (click for full report). They were generally receptive to our argument for a positive long-term trend. 

Some expressed concerns over valuation levels after the strong run-up in prices over the past year but most believed that the recent market correction has provided better entry points.

Here's more from Maybank Kim Eng:

Overall, they were most excited about the recently announced plans to double Changi Airport’s capacity by the mid-2020s and believed that it is a good indicator of demand trends for the sector.

Clients also highlighted the conservative balance sheets of the sector as a key feature of its defensiveness.

Clients said they would continue to view SIA Engineering (SIAEC) as a proxy to growth at Changi Airport and watch its cash levels for special dividend distributions.

ST Engineering (STE) is favoured for its unique exposure to the defence industry. This was, in fact, the main reason why some clients preferred this stock to SIAEC and SATS, especially amid prevailing concerns over economic strength and the spillover effects on the aviation industry.

Given that there are not many publicly listed aviation MRO peers, clients said OEMs could provide a good comparison as they move to capture a larger slice of the aftermarket.

Many loved the strong cash-generative nature of SATS, but would watch the company’s spending on acquisitions as it is a key risk factor for the stock.

While the grand plan to revive Japan’s economy could boost tourism traffic and benefit SATS’ inflight catering unit in the country, clients said more policy changes need to be made to achieve the desired impact on the tourism sector. For now, they would remain sceptical.