ST Engineering rises on freighter aircraft leasing JV with Temasek

ST Engineering saw shares rally 1.6% after it announced a new 50-50 joint venture (JV) with Temasek.

  • Singapore Technologies (ST) Engineering Ltd (SGX: S63) share price hits a high of S$3.77 on Wednesday (12 May 2021)
  • This comes on the back of a new 50-50 JV agreement with Temasek for freighter aircraft leasing
  • The JV will aim to build a portfolio valued at about S$800 million
  • It is ‘not expected to have any material impact’ on consolidated net tangible assets per share and earnings per share for the current financial year
  • Buy and sell ST Engineering stocks with an IG account

ST Engineering share price: What’s the latest?

ST Engineering shares rose as much as 1.6%, a day after announcing that its wholly-owned aviation asset management unit has entered into an 50-50 JV agreement with Temasek for freighter aircraft leasing.

The JV will ‘address the growing demand for freighter aircraft 1 as e-commerce and air cargo volumes expand across the globe’, according to a press release.

It aims to build a portfolio valued at about US$600 million (or about S$800 million) within five years, and will invest in passenger aircraft to be converted into highly efficient freighters.

ST Engineering said that the setting up of this JV is ‘not expected to have any material impact’ on the group’s consolidated net tangible assets per share and earnings per share for the current financial year.

The counter is down 2.6% year to date. Analyst sentiments published by SGX StockFacts show a consensus rating of ‘neutral’ alongside a 12-month price target of S$4.07 on the stock.

The price target represents an upside of 9.1% from the stock’s last traded price of S$3.73.

What are the details of the JV?

On the supply side, the JV expects to purchase passenger aircraft feedstock at lower prices as passenger aircraft value has been affected by travel restrictions arising from the Covid-19 pandemic.

The JV intends to finance these aircraft through a mix of equity and debt.

Operationally, ST Engineering will provide the associated maintenance, repair and overhaul services to these aircraft. The group will also be the asset and lease manager to the JV, which complements its existing aviation asset management business model.

The portfolio will primarily comprise narrowbody aircraft that will provide an option to operators to reuse older passenger aircraft by giving them a new lease of life as fuel efficient freighters.

This is in line with the JV’s focus to implement an environmental, social and governance (ESG) policy to guide its operations and business development.

The JV will set relevant ESG criteria for its investments and work with prospective clients on measures to reduce their carbon footprint, including the use of sustainable aviation fuels and enhanced engine maintenance programmes.

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