ST Engineering Ltd: A Scarcity Play in the Region as a Defense Proxy

OCBC Investment Research | 21 March 2025

ST Engineering Ltd (STE) has been a standout performer, delivering total returns of 41% year-to-date (YTD) after strong showings of 21% in 2023 and 24% in 2024. The company’s meaningful exposure to the defense sector, integrated aerospace solutions, and growing passenger-to-freighter conversion business have positioned it well for continued growth.

Increased Dividends and Refreshed Five-Year Targets

STE recently announced plans to increase its FY25 dividend to 18.0 cents per share, up from 17.0 cents in FY24. The company also unveiled a new dividend policy, stating it will pay out about one-third of the year-on-year increase in net profit as incremental dividends from FY26 onwards.
Looking ahead, STE has refreshed its five-year targets (2025-2029). The group aims to:
Grow revenue by more than 2.5x the global GDP growth rate to SGD17 billion
Achieve a net profit CAGR that exceeds the revenue CAGR by up to 5 percentage points
Increase dividend per share in tandem with profit, using 2024 as the base year

Strong Fundamentals and Positive Sentiment

STE’s solid fundamentals, coupled with the positive sentiment around global defense plays, have contributed to its outperformance. In FY24, the group secured new contracts worth SGD12.6 billion, bringing the total order book to SGD28.5 billion, with SGD8.6 billion expected to be delivered in 2025.

Valuation and Outlook

We have tweaked our estimates for STE and revised our fair value from SGD6.30 to SGD7.75, based on 23x 2026 estimated earnings and a slight ESG premium. The company remains well-positioned to benefit from the ongoing Aerospace & Defense CAPEX upcycle, as well as positive structural trends in the Urban Solutions and Satcom segments.

Key Risks

Potential risks include a decline in oil prices pressuring the marine business, lower-than-expected margins for new contracts, integration challenges post-acquisitions, and a longer-than-expected recovery in the aerospace segment.
Overall, STE continues to demonstrate its resilience and growth potential, making it a quality name for long-term investors to consider accumulating on dips.