Business

ST Engineering regains its mojo as it enters new phase


SINGAPORE – After almost six decades of growth, Singapore Technologies Engineering has entered a new phase of transformation.

This has involved divestment of at least a dozen businesses and investment, and a refocusing on new core capabilities for a technology- and digital-driven future.

It has consolidated its myriad business units – including aerospace engineering, defence, marine technology and even pilot training – into a more tightly knit, inter-connected and focused organisation comprising two major divisions – commercial as well as defence and public security.

These two divisions leverage on a common engineering technology platform, which in turn is supported by shared services and common group corporate functions. Instead of multiple boards, the entire company reports to a single board.

Driving these changes is chief executive officer Vincent Chong, a former US-based senior executive of global energy giant Exxon, who took over the helm in late 2016.

“We started this journey to build on the success of our pioneers,” he told The Straits Times in an exclusive interview. “It was driven by the recognition that having one brand identity is important on the global stage and in a new global marketplace.”

Mr Chong added that the transformation had delivered more resilience to the group.

“We have divested 12 business units in the last three years and have gone into opportunistic acquisitions which align with our overall strategy,” he said. “As a result, we have strengthened our technological and digital capabilities, strengthened our branding, rationalised our portfolio and delivered credible value for shareholders despite the challenges of the past year.”

The company recently reported a 15 per cent improvement in net earnings to $296.1 million for the first half of the financial year to end-June. Topline revenue edged up 2 per cent to $3.65 billion.

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This comes after a challenging 2020 when its commercial aerospace and satellite communications businesses – which together account for almost 40 per cent of its revenue – were badly hit by the Covid-19 pandemic.

“We were actually doing very well and on track for strong growth from 2019 before Covid-19 happened,” Mr Chong said.

Indeed, the company achieved record net profit of some $577.9 million on the back of record revenue of $7.87 billion at the end of the FY2019 period in December 2019. But project delays, contract cancellations, manpower issues and the global supply chain crunch depressed revenue by 9 per cent to $7.16 billion by the end of last year, with net profit sliding 10 per cent to $521.8 million.


ST Engineering chief executive officer Vincent Chong took over the helm in late 2016. PHOTO: ST ENGINEERING GROUP

“Fortunately, cost savings from the rationalisation and industry support measures rolled out by the government mitigated the worst impact,” Mr Chong added.

Going forward, he reckons the company has regained its mojo.

While commercial aerospace will remain a key contributor, especially its passenger-to-freighter conversion business, two particularly high-growth areas will be its smart city/smart mobility solutions and international defence businesses.

ST Engineering has been on an acquisition drive to grow both these businesses.

In September, it announced the US$2.68 billion (S$3.65 billion) purchase of US-based TransCore Partners, which provides electronic tolling solutions, intelligent transportation systems and congestion pricing. It will boost ST Engineering’s capabilities in global urban mobility and smart city solutions, such as its project in Brazil’s Rio de Janeiro where it has clinched a 10-year intelligent street lighting solutions deal, or its $445 million mass rail transit project in Kaohsiung, Taiwan.

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According to Mr Chong, many of these smart city and intelligent mobility projects ride on ST Engineering’s digital capabilities, which apply artificial intelligence analytics, cloud computing, cyber-security capabilities and satellite communications technologies.

The company has spent another $1.3 billion over the past three years on various other acquisitions, including the purchase of US aircraft engine casing specialist MRAS from General Electric; Belgian satellite communications company Newtec Group; and a US-based anti-jamming system Glowlink Communications.

Mr Chong reckons ST Engineering is well positioned to continue on an acquisition trail to boost its capabilities and global presence, even as it grows its own internal capabilities.

“We maintain strong financial discipline and this gives us good access to financing,” he said.

Indeed, with net current assets exceeding $550 billion, ST Engineering has sufficient financial firepower.

Meanwhile, the company’s order books had climbed to some $18.2 billion by end-September, providing strong earnings visibility for the next three years.

According to Mr Chong, while smart city solutions is a fast-growing business, ST Engineering’s more traditional businesses – aerospace and defence – continue to hold up well.

ST Engineering is the world’s largest independent maintenance, repair and overhaul player for commercial aircraft, and is one of the biggest players in the passenger-to-freighter aircraft conversion business.

On the defence side, the group’s all-terrain cold-weather vehicle prototypes are now being tested by the US military. It also won a contract to construct offshore patrol vessels for the United Arab Emirates Navy.

While scouting the world for acquisition opportunities, the company – which has 16,000 engineers and technical specialists around the world – is also investing heavily in technology, both in-house and externally.

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In addition to allocating up to 5 per cent of its revenue to technology and innovation, the group also maintains a US$150 million venture fund to invest opportunistically in various technological ventures and start-ups. These include corporate labs, joint labs, and even partnerships with universities. ST Engineering also maintains offices in Tel Aviv in Israel and Silicon Valley in California to “stay engaged” with the tech ecosystems in these places.

With all the chess pieces slowly falling in place, Mr Chong has a clear vision of what ST Engineering will look like in the near future.

“We want to be a global technology, engineering and defence powerhouse, with topline revenue growing threefold to $11 billion by 2026,” he said.

The challenge, he added, is in the execution.

“We need to stay agile and versatile and watch mega trends as they unfold. We also need to grow our core strengths as we ride the technology and innovation wave.”





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