[Click eStock] "STX Engine, Expecting Growth Centered on Special Business Division"

Expansion of Special Projects Division and Naval Ship Engine Orders
Successful Turnaround to Operating Profit in Q1 2024
Increase Expected in Domestic and Export Projects from Clients

Korea Investment & Securities analyzed on the 2nd that STX Engine is expected to continue external growth due to the expansion of orders for the special business division and naval ship engines. No separate investment opinion was provided. The closing price of STX Engine on the previous trading day was 17,390 KRW.

Researcher Jang Nam-hyun of Korea Investment & Securities stated, "The improvement in STX Engine's performance is driven by two main factors," adding, "First, the special business division's turnaround to profitability made a significant contribution to operating profit, and second, orders for naval ship diesel engines are also expected to increase."

STX Engine is a company specializing in the manufacture of diesel engines. It was established on April 1, 2004, through a spin-off of STX's diesel engine division. It was re-listed on May 10, 2004. Currently, the UAMCO private equity fund (PEF) holds 80.94% of the common stock. The company operates three divisions: civilian, special, and information and communication. As of 2023, the civilian business generated 51% of annual sales, the special business division accounted for 37%, and the information and communication division made up 12%.

STX Engine's sales in the first quarter of 2024 were 115.5 billion KRW, a 1.3% decrease compared to the same period last year, but operating profit turned positive at 6.8 billion KRW. This was thanks to improved profitability in the civilian business division and the special business division's return to profitability. The performance improvement trend that began in 2023 continued into the first quarter of this year, driven by the special business division's results, which caused the total order backlog to surge. At the end of the first quarter of 2024, the order backlog reached 1.25 trillion KRW, the highest level since the separation from the STX group in 2014. A significant factor was the order for the K9 self-propelled howitzer engine (MT881) for Hanwha Aerospace. Since the customer's self-propelled howitzer shipments are scheduled to begin in earnest this year, external growth centered on the special business division is expected.

Additionally, domestic and export projects from customers are increasing. In April, HD Hyundai Heavy Industries signed a contract to supply materials and equipment for the construction of four naval vessels (one frigate, one coastal patrol ship, and two landing crafts) at the SIMA shipyard in Peru, and STX Engine is expected to supply the propulsion system for this project. Such local export projects are anticipated to increase going forward.

Researcher Jang said, "These investment points are expected to have a positive impact on STX Engine's future performance improvement and growth," adding, "Strong orders from the special business division and the expansion of naval ship engine orders will act as key factors to enhance the company's profitability and sustain external growth."