OCBC Investment Research
15 August 2025
ST Engineering: Robust Defence Tailwinds and Aerospace Recovery Drive Growth, But Valuations Remain Elevated
Executive Summary: Key Highlights and Analyst Outlook
Singapore Technologies Engineering Ltd (ST Engineering, STE) remains a cornerstone in the Asia-Pacific defence and engineering landscape, leveraging its market position in aerospace, defence, and smart city solutions. The latest research update from OCBC Investment Research rates STE as HOLD, noting strong order momentum, healthy margin expansion, and robust contract wins. However, the current valuation appears rich, trading well above historical averages. The fair value has been raised to SGD 8.90, with the stock last closing at SGD 8.40.
Investment Thesis: Growth Engines and Strategic Positioning
STE is uniquely poised to capitalize on a multi-year defence spending upcycle and the increasing demand for integrated aerospace solutions. Key growth drivers include:
- Significant exposure to defence manufacturing, with about one-third of business defence-related.
- Integrated aerospace lifecycle and MRO (Maintenance, Repair, Overhaul) capabilities.
- Passenger-to-freighter (PTF) conversion ramp-up supporting aerospace segment growth.
- Expansion in urban solutions and satcom (USS) for longer-term value creation.
In FY24, the group secured a record SGD 12.6 billion in new contracts, elevating its total order book to SGD 28.5 billion, offering solid revenue visibility for the years ahead.
Strong 1H25 Performance: Margin Expansion and Dividend Stability
STE delivered an impressive first half for FY25:
- 1H25 revenue reached SGD 5.9 billion, up 7% YoY (8% excluding forex effects).
- EBITDA rose 11% YoY to SGD 871 million, EBIT up 15% to SGD 602 million.
- PATMI (Profit After Tax and Minority Interests) surged 20% YoY to SGD 403 million, broadly in line with expectations.
- Dividend declared: 4.0 Singapore cents per share for 2Q25, totaling 8 cents for 1H25 (unchanged YoY).
Growth was broad-based, with healthy margins, cost management, and increased project volumes credited for the performance.
Segmental Performance: Aerospace and Defence Lead, Urban Solutions Stable
- Commercial Aerospace (CA): 1H25 revenue increased 5% YoY to SGD 2.3 billion, driven by engine MRO and nacelle services, offset by weaker PTF. EBIT jumped 18% to SGD 223 million, benefiting from efficiencies and improved margins.
- Defence & Public Security (DPS): Revenue rose 12% YoY to SGD 2.6 billion, with EBIT up 13% to SGD 367 million, fueled by structural defence spending and effective cost controls.
- Urban Solutions & Satcom (USS): Revenue was flat YoY at SGD 921 million, but EBIT grew 32% to SGD 12 million, reflecting a better margin mix and disciplined cost management.
Order Book Momentum and Revenue Visibility
In 1H25, STE secured SGD 9.1 billion in new contracts (SGD 4.4 billion in 1Q25, SGD 4.7 billion in 2Q25), bringing the order book to a record SGD 31.2 billion as of 30 June 2025—an 18% YoY increase. Approximately SGD 5.0 billion of this is scheduled for delivery in the remainder of 2025, underpinning strong forward visibility.
Financial Summary: Steady Growth and Improving Margins
| SGD million |
FY24 |
FY25E |
FY26E |
| Revenue |
11,276 |
12,418 |
13,612 |
| EBIT |
1,077 |
1,253 |
1,420 |
| Net Profit |
702.3 |
862.6 |
997.3 |
| EPS (SGD) |
0.22 |
0.28 |
0.32 |
| DPS (S cents) |
17.0 |
18.0 |
19.4 |
| Operating Margin (%) |
9.5 |
10.1 |
10.4 |
| Net Profit Margin (%) |
6.2 |
6.9 |
7.3 |
| Dividend Yield (%) |
2.0 |
2.1 |
2.3 |
Valuation Analysis: Comparison with Global Peers
STE currently trades at 28x forward P/E, nearly three standard deviations above its historical average. This suggests that much of its growth is already reflected in the share price, with limited near-term upside. The following table compares key valuation metrics across leading aerospace and defence companies:
| Company |
P/E (FY25E) |
P/E (FY26E) |
P/B (FY25E) |
P/B (FY26E) |
EV/EBITDA (FY25E) |
EV/EBITDA (FY26E) |
Dividend Yield (FY25E) |
Dividend Yield (FY26E) |
ROE (FY25E) |
ROE (FY26E) |
| ST Engineering (STE) |
30.2 |
27.0 |
8.8 |
7.8 |
17.8 |
16.5 |
2.2 |
2.3 |
31.0 |
30.0 |
| SIA Engineering (SIAE.SI) |
20.7 |
18.6 |
0.3 |
0.3 |
29.7 |
25.5 |
3.0 |
3.2 |
9.7 |
10.4 |
| Northrop Grumman (NOC) |
23.0 |
20.2 |
5.4 |
5.1 |
16.6 |
15.3 |
1.5 |
1.6 |
23.9 |
25.7 |
| BAE Systems (BAES.L) |
24.1 |
21.6 |
4.3 |
4.0 |
14.5 |
13.5 |
2.0 |
2.2 |
18.6 |
18.9 |
| Rheinmetall AG (RHMG.DE) |
56.9 |
38.0 |
14.4 |
11.2 |
31.3 |
22.2 |
0.7 |
1.0 |
27.9 |
32.3 |
Company Overview and Segmental Breakdown
ST Engineering is a global technology, defence, and engineering group with a diversified portfolio across aerospace, smart city, defence, and public security. With operations in more than 100 countries, STE is headquartered in Singapore and is among the largest companies on the Singapore Exchange.
FY24 Revenue Breakdown by Segment:
- Defence & Public Security: 44.0%
- Commercial Aerospace: 38.7%
- Urban Solutions & Satcom: 17.0%
FY24 Revenue Breakdown by Geography:
- Asia: 51.4%
- US: 23.0%
- Europe: 18.9%
- Others: 6.7%
FY24 EBIT by Segment:
- Defence & Public Security: 59.0%
- Commercial Aerospace: 37.2%
- Urban Solutions & Satcom: 3.7%
Dividend History (DPS, S cents):
- FY17–FY21: 15.0–16.0
- FY22: 16.0
- FY23: 17.0
- FY24: 17.0
Comprehensive Financial Performance
| Metric |
FY2020 |
FY2021 |
FY2022 |
FY2023 |
FY2024 |
| Revenue (SGD m) |
7,158.3 |
7,692.9 |
9,035.1 |
10,101.0 |
11,275.7 |
| Gross Profit (SGD m) |
1,527.5 |
1,535.1 |
1,698.7 |
1,973.6 |
2,174.3 |
| Net Profit (SGD m) |
521.8 |
570.5 |
535.0 |
586.5 |
702.3 |
| Operating Margin (%) |
7.91 |
8.55 |
7.77 |
8.48 |
8.92 |
| Net Profit Margin (%) |
7.29 |
7.42 |
5.92 |
5.81 |
6.23 |
| EPS (SGD) |
0.2 |
0.2 |
0.2 |
0.2 |
0.2 |
| Dividend Payout Ratio (%) |
90.14 |
82.43 |
93.76 |
85.00 |
76.06 |
| Return on Equity (%) |
23.12 |
24.25 |
22.24 |
24.15 |
27.38 |
Potential Catalysts and Key Risks
Opportunities:
- Continued recovery in the aerospace segment.
- Growth in contract wins, particularly in electronics.
- Stronger-than-expected project margins.
Risks:
- Declining oil prices impacting marine business.
- Weaker-than-expected margins for new contracts.
- Integration challenges post-acquisitions.
- Delayed recovery in the aerospace sector.
Shareholder Structure and Market Snapshot
- Ticker: STEG.SI
- Market Cap: USD 20.5 billion
- Daily Turnover: SGD 7.7 million
- Free Float: 47%
- Shares Outstanding: 3,121 million
- Top Shareholder: Temasek Holdings (50.9%)
Conclusion: Long-Term Potential, Short-Term Valuation Watch
ST Engineering stands on a solid foundation, underpinned by a multi-year defence upcycle, expanding aerospace solutions, and strategic urban technology initiatives. With a record order book and growing profitability, STE is well-positioned for long-term growth. However, given the elevated valuation multiples, much of the near-term upside appears priced in, warranting a HOLD recommendation for now. Investors should monitor sector catalysts and global macro trends for future entry points.
