CGS International
August 14, 2025
ST Engineering: Growth Priced In as Orderbook Hits Record High—Valuation Premium Drives Downgrade to Hold
Overview: Robust Margin Expansion and Record Orderbook
ST Engineering (STE) delivered strong results in 1H25, with margin expansion across all segments and a record orderbook. The company’s focus on cost savings and strategic portfolio management is bearing fruit, with international business—especially in the Middle East—remaining a bright spot. However, the current valuation premium leads to a rating downgrade from Add to Hold, despite a raised target price.
Key Financial Highlights
- 1H25 Net Profit: S\$403 million (+20% year-on-year), representing 49% of full-year forecasts.
- 1H25 Revenue: S\$5.9 billion (+7% yoy), with 2Q25 revenue at S\$2.9 billion (+6% yoy).
- Commercial Aerospace (CA): Revenue up 11% yoy to S\$1.2 billion in 2Q25. EBIT margin rose 100bp yoy to 9.5%.
- Defence & Public Security (DPS): Revenue up 6% yoy to S\$1.3 billion in 2Q25.
- Urban Solutions & Satcom (USS): Revenue stable at S\$0.9 billion, margin to improve in 2H25F.
- Orderbook: Grew 5% quarter-on-quarter to a record S\$31.2 billion, with S\$9.1 billion in order wins year-to-date.
- Dividend: Interim DPS of S\$0.04, taking 1H25 DPS to S\$0.08; FY25F guidance maintained at S\$0.18 per share.
Margin Gains and Cost Savings Drive Performance
ST Engineering’s strategic cost-saving initiatives—targeting over S\$1 billion in cumulative savings from 2025 to 2029—are delivering early results, with over S\$100 million in savings in 1H25. The company recognized S\$46.9 million in one-off income from several sources, including the absence of fair value loss from corporate venture investments, compensation for lease termination, and late payment interest. However, an impairment was recorded from scaling down CA operations in Mobile, Alabama.
A divestment gain of S$180 million from the sale of stakes in LeeBoy and SPtel is expected to be booked in 2H25F, pending completion. The company’s ongoing portfolio review aims to streamline operations and exit low-margin businesses.
International Defence Expansion and Middle East Focus
STE is expanding its global defence presence, particularly focusing on military aircraft MRO in the Middle East and North Africa. Demand for 40mm and 150mm ammunition and armoured vehicle platforms (Bronco and Terrex) remains strong.
Balance Sheet Strength and Outlook
- Borrowings: Decreased to S\$5.5 billion in 1H25 (from S\$5.8 billion in FY24).
- Divestment Proceeds: Expecting approximately S\$450 million by 4Q25F.
- Borrowing Cost: Anticipated to be in the mid-3% range for FY25F.
- Valuation: STE now trades at over +3 standard deviations from its historical average, pricing in a 13% FY26F EPS growth.
The raised target price stands at S\$8.70, based on 28x CY26F P/E. The recommendation is downgraded to Hold, with upside risks including large defence contract wins, and key downside risks being slower order wins.
Detailed Segment Performance
| Segment |
Revenue 1H25 (S\$m) |
yoy Growth |
EBIT 1H25 (S\$m) |
EBIT Margin 1H25 |
| Commercial Aerospace |
2,347 |
+5.2% |
223 |
9.5% |
| Urban Solutions & Satcom |
921 |
+0.3% |
12 |
1.3% |
| Defence & Public Security |
2,648 |
+11.7% |
367 |
13.9% |
| Total |
5,916 |
+7.2% |
602 |
10.2% |
Quarterly Revenue by Segment (S\$ million)
- Commercial Aerospace: 2Q25 S\$1,194m (+11% yoy)
- Urban Solutions & Satcom: 2Q25 S\$475m (–3% yoy)
- Defence & Public Security: 2Q25 S\$1,326m (+6% yoy)
Group revenue for 2Q25 reached S\$2,995 million.
Orderbook and Contract Wins: Setting New Records
- Order Wins (2Q25): Largely split between segments; orderbook at S\$31.2 billion as of end-2Q25
- Orderbook Progression: Consistent quarter-on-quarter growth, underpinned by robust international demand and a diversified project portfolio
Valuation and Peer Comparison
| Company |
Ticker |
Market Cap (US\$ m) |
P/E CY25F |
P/E CY26F |
Recurring ROE CY25F |
Dividend Yield CY25F |
| ST Engineering |
STE SP |
20,473 |
30.3 |
27.0 |
28.7% |
2.1% |
| General Electric |
GE US |
285,110 |
47.6 |
41.0 |
34.4% |
0.5% |
| RTX Corp |
RTX US |
208,424 |
26.0 |
23.4 |
12.8% |
1.7% |
| Honeywell |
HON US |
139,512 |
20.6 |
19.0 |
38.0% |
2.1% |
| Siemens |
SIE GR |
216,799 |
21.0 |
19.3 |
16.6% |
2.3% |
Forecast Revisions and Financial Summary
- Core EPS for FY25F–27F: Lifted by 2–5% on higher CA margins and lower financing costs
- Reported EPS for FY25F: Up 27% to account for divestment gains
- Target Price: Increased to S\$8.70 (previously S\$8.40)
- Price Performance: 1M: +3.3%; 3M: +16.8%; 12M: +92.2%
| Year |
Revenue (S\$m) |
Operating EBITDA (S\$m) |
Net Profit (S\$m) |
Core EPS (S\$) |
Core EPS Growth |
FD Core P/E (x) |
DPS (S\$) |
Dividend Yield |
ROE |
| 2023A |
10,101 |
1,382 |
586 |
0.18 |
34.8% |
45.58 |
0.16 |
1.90% |
23.6% |
| 2024A |
11,276 |
1,543 |
702 |
0.23 |
22.3% |
37.28 |
0.17 |
2.02% |
27.4% |
| 2025F |
12,418 |
1,733 |
1,044 |
0.28 |
23.0% |
30.32 |
0.18 |
2.14% |
29.7% |
| 2026F |
13,149 |
1,865 |
971 |
0.31 |
12.5% |
26.96 |
0.17 |
2.02% |
28.8% |
| 2027F |
13,885 |
1,978 |
1,052 |
0.34 |
8.3% |
24.89 |
0.18 |
2.14% |
27.4% |
ESG Advancements: Sustainability Gains Traction
ST Engineering’s ESG profile continues to strengthen, reflected by its improved LSEG ESG score (A– in 2024, up from B– in 2015). Major sustainability achievements include:
- 25% reduction in Scope 1 and 2 emissions (from 2015 baseline), ahead of its 50% cut-by-2030 target
- 20% of global electricity consumption now from renewables
- 23% decrease in water consumption intensity
- Recognition as a constituent of the Dow Jones Best-in-Class APAC Index
Continuous improvement programs have focused on resource optimization, emission reduction, and employee wellbeing, bolstering STE’s appeal to ESG-focused funds.
Risk Factors and Investment Considerations
- Upside Risks: Large defence contract wins, successful divestment of non-performing operations
- Downside Risks: Slower order wins due to economic slowdown, lack of sizeable new contracts
- Valuation: Current trading levels at a significant premium to historical averages
Peer Group Analysis: Sector Benchmarks
The report provides a comprehensive comparison with global peers across Commercial Aerospace, Urban Solutions, Satellite Communications, Defence & Public Security, and Marine. Key highlights include:
- ST Engineering’s P/E ratios are at a significant premium compared to industry medians.
- Recurring ROE and dividend yields remain competitive, reflecting robust profitability.
- Peers such as General Electric, RTX Corp, Honeywell, and Siemens are included for benchmarking, along with region-specific comparisons in each segment.
Conclusion: Growth Priced In, Valuation Limits Upside
ST Engineering continues to execute strongly on revenue growth, margin expansion, and cost discipline. Its international expansion and robust orderbook highlight management’s effectiveness. However, the significant valuation premium constrains further upside, prompting a Hold recommendation despite operational outperformance and a raised target price.
Appendix: Additional Financial Metrics (Key Ratios)
| Key Ratio |
2023A |
2024A |
2025F |
2026F |
2027F |
| Operating EBITDA Margin |
13.7% |
13.7% |
14.0% |
14.2% |
14.2% |
| Net Dividend Payout Ratio |
85.2% |
75.6% |
53.9% |
54.7% |
53.4% |
| ROIC |
7.6% |
8.8% |
10.1% |
10.9% |
11.6% |
| ROCE |
9.8% |
11.8% |
13.6% |
14.3% |
14.7% |
This detailed analysis provides investors and market participants with a clear and comprehensive view of ST Engineering’s latest performance, strategic initiatives, financial outlook, and positioning within the global industrial landscape.
