UOB Kay Hian
Date of Report: Friday, 15 August 2025

Singapore Technologies Engineering Delivers Strong 1H25: Record Orderbook and Focus on Profit Growth

Overview: STE Delivers Solid 1H25 Performance

Singapore Technologies Engineering (STE) reported a robust financial performance for the first half of 2025, with net profit rising 19.7% year-on-year to S\$403 million, in line with analyst expectations and representing 49.5% of the full-year forecast. The group’s diverse portfolio, spanning aerospace, smart city, defense, and public security, continues to support resilient growth, underpinned by a record-high orderbook and improved operating margins across key segments. STE’s management remains optimistic with strong growth targets and a continued focus on driving profitability.

Key Investment Metrics at a Glance

• Share Price: S\$8.40
• Target Price: S\$8.56 (Upside: +1.9%)
• Market Capitalization: S\$26.22 billion
• Major Shareholder: Temasek Holdings (51.7%)
• Dividend Yield (2025F): 2.1%
• Orderbook (End-2Q25): S\$31.2 billion (record high)

1H25 Financial Highlights

Segmental Performance: Strengths and Weaknesses

Defence & Public Security (DPS)

• DPS revenue rose 11.7% year-on-year, reaching S\$2.65 billion, slightly behind projection at 46.3% of 2025 forecast.
• EBIT surged 16.0% year-on-year to S\$364 million, beating expectations due to better margins (52.2% of full-year forecast).
• Revenue growth supported by all subsegments.

Commercial Aerospace (CA)

• CA revenue grew 5.2% year-on-year to S\$2.35 billion, slightly ahead at 51% of 2025 forecast.
• EBIT increased 17.6% to S\$187 million (50.2% of full-year forecast).
• Strong engine MRO and nacelle business growth offset lower passenger-to-freighter (PTF) revenue.
• US-China tariff impacts were less significant than expected.

Urban Solutions & Satcom (USS)

• USS revenue was flat (+0.3% year-on-year) at S\$921 million, below expectations (44.8% of 2025 forecast).
• EBIT was also weak at S\$12 million (17.6% of full-year projections), mainly due to the ongoing transformation in the Satcom business.
• Urban Solutions (URS) revenue climbed 3% to S\$829 million, but Satcom revenue fell 12% year-on-year.

Record Orderbook and Robust Contract Wins

• Orderbook reached a record S\$31.2 billion at end-2Q25, up from S\$29.8 billion at end-1Q25.
• 2Q25 order wins totaled S\$4.7 billion:
  • Commercial Aerospace: S\$1.5 billion
  • Defence & Public Security: S\$1.5 billion
  • Urban Solutions & Satcom: S\$1.7 billion
• STE expects to deliver S\$5.0 billion worth of contracts from the orderbook in 2H25; excluding forex effects, this would be S\$5.2 billion.

Dividend and Capital Management

• Quarterly dividend maintained at 4 Singapore cents (flat year-on-year and quarter-on-quarter).
• Full-year dividend guidance for 2025 stands at 18 Singapore cents, implying a 2.1% yield and a 68% payout ratio based on core earnings.
• Net gearing (excluding lease liabilities) moderated to 145-150% by end-1H25, expected to drop further with S\$450 million proceeds from Leeboy and SPTel disposals in 4Q25.
• STE’s outstanding debts bear an average interest cost in the mid-3% range for full-year 2025.

Management Outlook: Upbeat on Growth and Margins

• STE’s five-year growth targets remain on track:
  • Revenue CAGR (2025-2029): 8.6%
  • Net profit CAGR: up to 13.6%, exceeding revenue CAGR by as much as 5 percentage points, supported by margin expansion and lower interest costs from debt reduction.
• 2H25 outlook remains positive, underpinned by the record orderbook.
• Commercial Aerospace: Project deliveries set to reaccelerate in 2H25; minimal tariff impacts expected for the full year.
• Defence & Public Security: International defense sales gaining traction, especially in Europe and the Middle East amid geopolitical tensions. Strong pipeline of opportunities.
• Urban Solutions & Satcom: More 2H-weighted performance expected. Urban Solutions to remain robust, while Satcom continues to face near-term challenges during its transformation.

Earnings Revision, Risks, and Valuation

• 2025 core earnings forecast increased by 1.1% to S\$822 million due to improved revenue mix and margin assumptions for 2H25.
• Including disposal gains of S\$180 million from Leeboy and SPTel, 2025 headline net profit is projected at S\$1,002 million.
• Key risks to watch:
  • Inflationary cost pressures impacting margins
  • Ongoing transformation and risks in Satcom
  • Unfavorable forex translation from a weakening US dollar
• STE’s valuation remains rich, trading at 28.1x/25.2x 2026/27F PE, significantly above its historical mean. No near-term de-rating catalysts are foreseen.
• Key catalysts: Organic earnings growth, positive business development and order wins, monetization of non-core businesses, and further debt reduction.

STE Core Financials Summary

Valuation Reference Table

Conclusion: Maintain HOLD on STE with Positive Operational Momentum

STE continues to demonstrate operational strength with a robust orderbook, healthy profit growth, and disciplined capital management. While its valuation remains elevated compared to historical averages, the lack of near-term de-rating catalysts, ongoing business transformation, and the prospect of further debt reduction support a steady outlook. Investors should monitor risks such as cost inflation, Satcom transformation, and forex volatility, but the company’s diversified business and strong financials provide a solid foundation for future growth. UOB Kay Hian maintains a HOLD rating with a raised target price of S\$8.56.