ST Engineering: Entering a Multi-Year Earnings Upcycle
Conglomerate │ Singapore │ March 18, 2025
Key Highlights
Group Targets
- Revenue guided to grow at more than 2.5x global GDP growth rate to S\$17bn by end-FY29F, indicating FY24-29F CAGR of c.9%.
- Net profit FY24-29F CAGR guided to exceed revenue CAGR by up to 5% pts (indicatively 9-14% CAGR), driven by improved operating leverage, better product/project mix, procurement savings, reduced interest expenses, and lower intangible amortisation.
- FY25F DPS guided at 18 Scts, with a shift to a payout-based dividend approach from FY26F onwards, indicating approximately 1 Sct increase in DPS per annum.
Defence and Public Security (DPS)
- Revenue guided to exceed S\$7.5bn by end-FY29F, reflecting strong FY24-29F CAGR of c.9%.
- STE sees a sizeable international defence addressable market of more than US\$11bn over the next five years, with a strong order pipeline across ammunition, vehicles, and weapons.
- STE intends to drive down costs through partnerships with international partners, citing an example of its 40mm ammunition delivery arrangement.
Commercial Aerospace (CA)
- Revenue guided to grow at 2x the aerospace industry’s growth rate to S\$6bn by end-FY29F, indicating FY24-29F CAGR of c.6%.
- Key growth drivers include engine MRO capacity expansion, and faster new aircraft deliveries boosting OEM business volume.
- Management shared that competition for labour remained intense, as both airlines and MRO players continue to compete for the same skilled labour pool.
Urban Solutions and Satcom (USS)
- Smart City revenue guided to grow at 3.5x the global GDP growth rate to S\$4.5bn by end-FY29F, with international markets and Digital Business revenue guided to grow at double-digit CAGR.
- STE believes its competitive edge lies in its ability to seamlessly integrate engineering and technology, and deliver modular solutions.
- Satcom transformation has shown early signs of improvement, with STE cautiously optimistic on its new product offerings.
Earnings Revision
To reflect stronger growth prospects, the analyst raised the target price to S\$7.40 on raised EPS estimates and a higher 25x FY26 P/E multiple (+1.5 s.d. from mean).
Peers Comparison
Commercial Aerospace
Compared to peers such as AAR Corp, FTAI Aviation, General Electric, HEICO, RTX, and Safran, ST Engineering’s Commercial Aerospace segment is expected to deliver above-industry growth, with a FY24-29F revenue CAGR of c.6%.
Urban Solutions
Peer companies in the Urban Solutions space include ABB, Cisco, Fujitsu, General Electric, Hitachi, Honeywell, IBM, Intel, Motorola Solutions, NEC, Schneider Electric, and Siemens. ST Engineering’s Smart City revenue is guided to grow at 3.5x the global GDP growth rate, outpacing many of its peers.
Satellite Communications
Peers in the Satellite Communications segment include EchoStar, Eutelsat Communications, Gilat Satellite Networks, Iridium Communications, and Viasat. ST Engineering’s Satcom transformation has shown early signs of improvement, though the industry remains in a disruptive phase.
Defence and Public Security
Comparable companies in the Defence and Public Security space are BAE Systems, Elbit Systems, General Dynamics, Hanwha Aerospace, Hyundai Rotem, LIG Nex1, Lockheed Martin, Mitsubishi Heavy Industries, and Northrop Grumman. ST Engineering’s DPS revenue is guided to grow at a strong FY24-29F CAGR of c.9%, reflecting management’s confidence in sustaining topline strength.
Marine
Peers in the Marine segment include China CSSC Holdings, China Shipbuilding Industry, Hanwha Ocean, HD Hyundai Mipo, Korea Shipbuilding & Offshore, Samsung Heavy Industries, and Yangzijiang Shipbuilding. ST Engineering’s Marine business was not a focus area in this report.
Source: CGS International Research, March 18, 2025
