Stronger MRO expected in 2011 — Management sees further upside to the MRO
segment since pickup in both air and cargo traffic has yet to completely filter down
towards MRO demand, with selected airlines deferring heavy maintenance to
conserve cash. A 6-12 month lagged effect of air traffic on MRO is expected. On
PTF (passenger to freighter) conversion, possibility of more conversion wins is not
ruled out, replacing B727s with B757s, while delivery schedule for the existing
Fedex contract could be brought forward in 2011, boosting top line growth.
Stronger MRO margins — MRO margins recovered from 8.7% in 1Q09 (trough) to
12.8% in 2Q10 and the trend of improving margin should continue into 2H10-
2011. Better orderbook mix, as well as higher margins achieved on PTF
conversions (post early stage learning curve), are reasons enhancing profitability.
Outlook from China — Management is upbeat on the presence it has established in
China. Growth will be broad based, driven by multiple MRO partnerships, Land
Systems (infrastructure), as well as Electronic products (communication). We
believe revenue contribution could double from current mid single digit level, albeit
from a small base within the next 2-3 years.
Marine business — Management is positive on the marine sector outlook despite
negative headwinds, and opine recent military shipbuilding yard closures in the US
has a minimal impact due to different product mix. Growth strategy remains
unchanged, aligning cost structure to be competitive and targeting both niche
commercial vessels and US government contracts. ST Eng is "SSA" qualified and
able to bid for US military projects. Should it succeed, there will be tremendous
growth potential given the size of the addressable market.
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