Hot stock: ST Engineering jumps 7% after move to acquire GE's aircraft parts maker

SHARES in mainboard-listed Singapore Technologies (ST) Engineering were on a tear on Friday morning with the engineering firm's stock advancing S$0.23 or seven per cent to S$3.52 as at 11.42am.

It was also among the Singapore bourse's most heavily traded stocks on the day with some 13.9 million shares changing hands.

The gain comes on the back of news on Thursday that ST Engineering's US subsidiary has struck a deal to acquire General Electric's MRA Systems, LLC (MRAS) for about US$630 million.

Several analysts said in reports they viewed the purchase positively, saying MRAS would be a good fit with ST Engineering's aerospace segment, and had strong growth potential.

In a research note, DBS Equity Research's Suvro Sarkar said: "This deal will help the aerospace division move up the value chain further into component original equipment manufacturer (OEM) businesses, and helps ST Engineering to acquire significant intellectual property in advanced composites and other technologies and brings complimentary spare parts and component maintenance, repair and overhaul (MRO) opportunities."

Meanwhile, CGS-CIMB's Lim Siew Khee shared the view that the acquisition "lifts ST Engineering's aerospace unit up the value chain to become an OEM of aircraft components and replacement parts."

"This also somewhat alleviates the fear that OEMs are stealing the lunch of independent MRO providers in the aftermarket segment," Ms Lim added.

Despite ongoing concerns on the global economy, "demand in ST Engineering's business divisions should not be affected much by the ongoing trade war tensions, and higher input costs are generally provided for in contracts," said Mr Sarkar.

DBS Equity Research maintained a "buy" call on the stock and lifted its target price to S$4.30. OCBC Investment Research has also maintained a "buy" call with a fair value estimate of S$3.95, while CDG-CIMB maintained its "add" call with a target price of S$3.80.

Based in Baltimore, Maryland, MRAS is a manufacturer of engine nacelle or engine casing systems, which houses an aircraft engine, providing efficient aerodynamics during flight and thrust reversal capabilities.

Specifically, MRAS is the single-source supplier for the new-generation A320neo aircraft powered by CFM LEAP-1A engines, in partnership with Safran Nacelles.