SINGAPORE (May 18): The Covid-19 outbreak has hurt the commercial aerospace industry. ST Engineering, with a big chunk of exposure to this industry, is likely to suffer. However, analysts believe the company’s earnings to remain relatively resilient thanks to its defence business.

“Aerospace and Electronics segments will face higher revenue pressure in the near term, owing to larger exposure to commercial customers. The aviation MRO space will be the biggest drag on earnings, as airlines look to defer maintenance spending, flying hours are reduced and new aircraft deliveries slow down. Taking this into consideration, we cut FY20/21 earnings by 16% and 18% respectively,” say Suvro Sakar and Jason Sum of DBS Group Research. 

ST Engineering saw a promising 1Q20 as it ended with a record-high order book of $16.3 billion worth of new contracts -- a sharp increase from the $15.3 billion at the end of 4Q19. Still, with the company set to face the full brunt of the Covid-19 recession in the coming quarters, Sakar and Sum reckon that the new order run rate could slow down going forward, with management anticipating a 5-15% reduction in topline for FY20. CGS-CIMB analyst Lim Siew Khee, on other hand, expects a smaller 3% y-o-y dip.

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