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ST Engineering Q1 net profit falls 6% but order book fattens

New businesses include a deal to make armored vehicles for the Singapore military

SINGAPORE (Nikkei Markets) - Singapore Technologies Engineering posted a 6% drop in first quarter net profit although orders grew as customers in the aviation sector renewed multi-year contracts.

ST Engineering, whose aerospace arm is one of the world's largest providers of maintenance, repair and overhaul services to the airline industry, said on Friday it earned 103.4 million Singapore dollars ($73.4 million) in the three months ended March, down from S$110.2 million in the same period a year ago.

Group revenue fell 5% to S$1.539 billion, but profit before tax rose 5% to S$137 million. Commercial sales accounted for about two-thirds of revenue during the quarter.

Looking ahead, chief executive Vincent Chong said ST Engineering's 2017 revenues are likely to be comparable to those in 2016, while profit before tax is expected to be higher.

"We continued to secure orders in 1Q2017 and concluded the quarter with a strong order book of S$13.3 billion," he said in a statement. ST Engineering's order book stood at S$11.6 billion at the end of 2016.

The Singapore-based company started as a defence contractor to the city-state's military but has since grown into a conglomerate with some 22,000 employees across Asia, the Americas, Europe and the Middle East. Its largest shareholder is Temasek Holdings, an investment firm owned by the Singapore government.

The operations of the defence and engineering group now span fast-growing and promising sectors such as cyber-security and driverless vehicles as well as relatively mature businesses such as aircraft MRO and making ammunition.

For instance, investment bank Morgan Stanley expects the market for cybersecurity products and services could double to $120 billion by 2020 from $60 billion in 2016. This works out to growth of around 18% a year.

Prospects for the MRO business are less attractive, however, with consultancy Oliver Wyman forecasting the commercial aircraft MRO market to grow by 3.8% per annum over the next decade.

Giving an overview of its various business operations, ST Engineering said aviation arm ST Aerospace managed to clinch contracts worth a record S$1.11 billion during the quarter, largely driven by the renewal of multi-year deals with various customers.

ST Aerospace's capacity expansion is on track, with the start of operations at a second hangar in Guangzhou, China, and the start of construction of a second composite panel production facility in Germany, ST Engineering said.

The aerospace arm is currently looking for customers for its Airbus A320 passenger-to-freighter conversion service as well as its new economy-class passenger seats that are designed in-house, ST Engineering said.

As for its other businesses, ST Engineering said its land system arm clinched a deal during the quarter to produce next generation armored fighting vehicles for the Singapore Armed Forces, while its electronics arm received a consulting contract to design Sri Lanka's National Cyber Security Operations Centre.

ST Engineering's marine arm was one of five recipients of a 12-month heavy polar icebreaker design and analysis contract from the U.S. Coast Guard aimed at identifying ways to reduce acquisition costs and narrow production timelines, it added.

--Kevin Lim

--Nikkei Markets is a real-time financial news service for South East Asia's markets published by Nikkei NewsRise Asia Pte Ltd, a Nikkei and NewsRise joint venture company. Nikkei Markets provides wide companies coverage in the region, including the Nikkei's Asia300 companies.

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