Maybank Research Pte Ltd
May 12, 2025
ST Engineering: Growth Intact, Monitor Tariffs
ST Engineering (STE SP) is navigating a landscape of robust defense tailwinds and potential tariff headwinds. This report provides an in-depth analysis of STE’s recent performance, strategic positioning, and future outlook.
1Q25 Performance Overview
- Revenue: Rose 8% YoY to SGD2.9b, driven by defense and public security. [[1]]
- Contract Wins: Strong and well-spread across all three business segments. [[1]]
- Tariff Monitoring: Risks to demand, particularly in commercial aerospace, require close attention. [[1]]
Management has indicated potential impacts on commercial aerospace due to tariffs, although mitigating plans are in place. Despite these challenges, a BUY rating is maintained due to strong defense demand and visible earnings growth. [[1]]
Financial Performance Analysis
Steady Top Line Growth and Dividend
1Q revenue increased steadily by 8% YoY (-1.7% QoQ), spearheaded by the DPS business, which saw an 18% YoY increase to SGD1.3b. This growth was consistent across all sub-segments, bolstered by project timing. [[1]]
- Commercial Aerospace (CA): 1Q25 revenue of SGD1.2b was flat YoY, with strong engine MRO growth offsetting lower PTF revenue. [[1]]
- Urban Solutions and SATCOM (USS): Revenue grew 4% YoY to SGD0.5b, with urban solutions growth partially offset by Satcom. Seasonal factors are expected to drive stronger growth in 2H25 for the USS business. [[1]]
- Dividend: STE maintained DPS of SGD4c for 1Q25. [[1]]
Order Book and Tariff Impact
- Order Book: Increased 4.6% QoQ/7.6% YoY to SGD29.8b. [[1]]
- New Orders: SGD4.4b for the quarter, led by SGD2.7b in DPS, SGD1.3b in CA, and SGD0.5b for USS. [[1]]
- Tariff Impact: Management suggests immaterial financial impact currently. [[1]]
Commercial aerospace revenue may face deferrals (<SGD40m/month, FY24 segment revenue SGD4.4b) as an initial effect. Cascading effects on the extended supply chain may be mitigated through cost pass-throughs, stockpiling, and capacity shifting to other regions, potentially affecting near-term margins. The wider impact from recession/inflation remains challenging to assess. [[1]]
Revised Financial Forecasts
FY25/FY26/FY27 profit forecasts have been adjusted by -1.1%/+0.5%/+1% due to lower revenue from CA, offset by growth in DPS and USS. The DCF-based Target Price (TP) is raised to SGD8.30. [[1]]
Investment Thesis
While lofty multiples (28.3x FY25E P/E, average 19.5x since 2015) leave limited room for error and tariffs pose downside risks, STE benefits from strong earnings visibility and a steady execution track record. [[1]]
Key Statistics
- Share Price: SGD 7.63 [[1]]
- 12m Price Target: SGD 8.30 (+9%) [[1]]
- Previous Price Target: SGD 7.10 [[1]]
- Rating: BUY [[1]]
- 52w high/low (SGD): 7.63/3.98 [[1]]
- 3m avg turnover (USDm): 48.1 [[1]]
- Free float (%): 46.7 [[1]]
- Issued shares (m): 3,122 [[1]]
- Market capitalization: SGD23.8B/USD18.4B [[1]]
- Major shareholders: Temasek Holdings Pte Ltd. (Investment Co – 49.8%), Capital Research & Management Co. (Global – 2.0%), The Vanguard Group, Inc. – 1.7% [[1]]
Company Description
STE is an engineering conglomerate with business in commercial aerospace, urban solutions & SATCOM and defence & public security. [[1]]
Price Performance
Price Performance is listed on [[1]]
- -1M Absolute (%): 21, Relative to index (%): 6
- -3M Absolute (%): 53, Relative to index (%): 52
- -12M Absolute (%): 95, Relative to index (%): 64
Financial Summary
Source: FactSet [[1]]
FYE Dec (SGD m):
|
FY23A |
FY24A |
FY25E |
FY26E |
FY27E |
| Revenue |
10,101 |
11,276 |
11,946 |
13,158 |
14,572 |
| EBITDA |
1,456 |
1,614 |
1,856 |
2,172 |
2,474 |
| Core net profit |
586 |
702 |
841 |
979 |
1,114 |
| Core EPS (cts) |
18.8 |
22.5 |
26.9 |
31.4 |
35.7 |
| Core EPS growth (%) |
9.6 |
19.7 |
19.7 |
16.4 |
13.8 |
| Net DPS (cts) |
16.0 |
17.0 |
18.0 |
19.3 |
20.7 |
| Core P/E (x) |
20.7 |
20.7 |
28.3 |
24.3 |
21.4 |
| P/BV (x) |
4.4 |
4.9 |
7.3 |
6.4 |
5.6 |
| Net dividend yield (%) |
4.1 |
3.6 |
2.4 |
2.5 |
2.7 |
| ROAE (%) |
24.1 |
27.4 |
29.9 |
31.0 |
30.6 |
| ROAA (%) |
4.0 |
4.6 |
5.0 |
5.4 |
6.1 |
| EV/EBITDA (x) |
12.5 |
12.5 |
15.3 |
13.0 |
11.6 |
| Net gearing (%) (incl perps) |
209.1 |
182.7 |
131.6 |
109.6 |
108.2 |
| Consensus net profit |
– |
– |
847 |
948 |
na |
| MIBG vs. Consensus (%) |
– |
– |
(0.8) |
3.3 |
na |
1Q Business Update
Key Highlights
SGDm.
|
1Q24 |
4Q24 |
1Q25 |
%QoQ |
%YoY |
Comments |
FY25e |
%FY25e |
| Commercial Aerospace |
1,152 |
1,099 |
1,153 |
5 |
0 |
High base effect, Engine MRO growth offset largely by lower PTF revenue |
4,485 |
26 |
| Defence & Public Security |
1,123 |
1,291 |
1,322 |
2 |
18 |
Growth in all sub-segments supported by project timing |
5,428 |
24 |
| Urban Solution & SATCOM |
429 |
584 |
446 |
(24) |
4 |
Growth in Urban Solutions partially offset by Satcom |
2,205 |
20 |
| Total revenue |
2,704 |
2,973 |
2,921 |
(2) |
8 |
|
11,946 |
24 |
Source: Maybank IBG Research [[2]]
Order Book and New Contracts
SGD b.
|
1Q24 |
4Q24 |
1Q25 |
| Order book |
27.7 |
28.5 |
29.8 |
| Expected delivery thru rest of FY |
6.5 |
8.8 |
7.3 |
| New contracts for the qtr. |
3.0 |
4.3 |
4.4 |
| – Commercial Aerospace |
0.8 |
1.8 |
1.3 |
| – Defence & Public Security |
1.7 |
1.7 |
2.7 |
| – Urban Solutions & SATCOM |
0.5 |
0.7 |
0.5 |
| Order executed |
2.7 |
2.7 |
3.1 |
Source: Maybank IBG Research [[2]]
Forecast Changes
Revised Projections for FY25E, FY26E, and FY27E
| FYE Dec |
NEW SGDm |
OLD SGDm |
% CHANGE |
| SGDm |
FY25E |
FY26E |
FY27E |
FY25E |
FY26E |
FY27E |
FY25E |
FY26E |
FY27E |
| – Commercial Aerospace |
4,485 |
4,795 |
5,127 |
4,700 |
5,025 |
5,373 |
-4.6% |
-4.6% |
-4.6% |
| – Defence & Public Security |
5,428 |
6,079 |
6,809 |
5,428 |
5,916 |
6,390 |
0.0% |
2.8% |
6.6% |
| – Urban Solutions & SATCOM |
2,205 |
2,462 |
2,821 |
2,205 |
2,419 |
2,748 |
0.0% |
1.8% |
2.6% |
| – Others |
(172) |
(178) |
(184) |
(172) |
(176) |
(181) |
0.0% |
0.8% |
2.0% |
| Revenue |
11,946 |
13,158 |
14,572 |
12,161 |
13,184 |
14,330 |
-1.8% |
-0.2% |
1.7% |
| Gross profit |
2,298 |
2,787 |
3,320 |
2,331 |
2,666 |
2,918 |
-1.4% |
4.5% |
13.7% |
| EBIT |
1,184 |
1,320 |
1,485 |
1,195 |
1,314 |
1,472 |
-0.9% |
0.5% |
0.9% |
| Net Profit |
841 |
979 |
1,114 |
850 |
974 |
1,103 |
-1.1% |
0.5% |
1.0% |
| Core EPS, SGDc. |
26.9 |
31.4 |
35.7 |
27.2 |
31.2 |
35.3 |
-1.1% |
0.5% |
1.0% |
| DPS, SGDc. |
18.0 |
19.5 |
20.9 |
18.0 |
19.3 |
20.7 |
0.0% |
0.8% |
1.1% |
Source: Maybank IBG Research [[3]]
Valuation
Management has articulated risks stemming from the evolving tariff situation. Commercial aerospace is particularly vulnerable due to its extended supply chain, potentially impacting about 10% of FY25E revenue. While order cancellations are not currently a concern, order deferrals and margin erosion remain possibilities. Conversely, structural factors and domestic support are expected to bolster the defense and public security segment. [[3]]
The smart mobility segment is securing orders, with c.SGD5.2b of major contract wins in the US and ex-SG since 2021, expected to generate a robust revenue stream for at least the next 10 years. TransCore has contributed about SGD1.5b of these wins. [[3]]
Revenue projection for commercial aerospace has been lowered by c. 5%, while projections for the defense and public security business, as well as Urban Solutions and SATCOM business, have been raised. While revenue declines for FY25E, it remains relatively flat for FY26E and increases for FY27E. A slight decline in margins is anticipated, leading to a net profit fall of 1.1% in FY25 but a rise of 0.5-1.1% in FY26-27E. [[3]]
STE is valued using a DCF model with a WACC of 7.3% and a lower discount of 30% (previously 40%) applied to the terminal value. This results in a higher TP of SGD8.30. [[3]]
Despite rich multiples (28.3x PE FY1, avg. 19.5x since 2015) and tariff uncertainty, STE benefits from earnings visibility due to its record order book and steady execution track record. This leads to a healthy 17% average annual earnings growth and 10% EBIT margin for the forecasted period. Structural drivers around defense demand and a shift towards higher-margin businesses may warrant a re-rating. [[3]]
Risks
- Slowdown in orders from domestic sources. [[3]]
- Moderation of growth and margins in the commercial aerospace sector. [[3]]
- Slower-than-expected turnaround of urban solutions and SATCOM business. [[3]]
- Dilutive M&As and integration challenges. [[3]]
- Impairments in TransCore from lack of order wins in congestion pricing. [[3]]
Value Proposition
- STE has a 50-year history as Singapore’s primary defense contractor. [[4]]
- It has successfully evolved its operations to tap the commercial marketplace, with commercial and defense revenues split roughly 55:45. [[4]]
- Operating segments are aligned by the commercial aerospace, urban solution & satellite communication and defence & public security sectors. [[4]]
- Offers customers the ability to leverage a deep pool of engineering expertise across multiple sectors to deliver tailored solutions. [[4]]
- One of the largest and non-airline affiliated aviation MRO providers in the world. [[4]]
Price Drivers
- Multiple stock rating upgrades from the street. [[4]]
- Large contract win of SGD1b with options up to SGD2.6b for US marine subsidiary VT Halter Marine. [[4]]
- Global pandemic strikes causing huge disruption to aviation industry. [[4]]
- Singapore Technologies Engineering is marking its largest acquisition to date with the USD2.68b (SGD3.64b) all-cash offer for a group of entities under Roper Technologies focused on transport management systems. [[4]]
- Gradual rebound in MRO business, demand for PTF business and growth in Digital business within Defence and Public Security business. [[4]]
Financial Metrics
- Key factors driving expectation of a blended margin recovery in FY23-FY25E: higher EBITDA margin from aerospace, growth of digital business and monetisation from inorganic growth. [[4]]
- Aside from improving margins, robust aerospace and defence order books with relatively stable smart city initiatives underpin 15% core PATMI CAGR forecast. [[4]]
- ROE is expected to rebound from 24% in FY23 to 27% by FY26E. [[4]]
Swing Factors
Upside
- Higher-than-expected passenger to freighter work from airlines upgrading their passenger fleets with cargo growth supportive. [[4]]
- Better-than-expected margins if aircraft OEMs slow down their aftermarket expansion (as order books are full). [[4]]
- Broader recovery in marine orders from a demand rebound for oilfield services vessels and specialised ship repair. [[4]]
- Order book growth from US defence and infrastructure project wins, an area that STE has been pursuing but where large contracts have been few and far in-between. [[4]]
Downside
- Ongoing rise in inflation could see a supply crunch in aircraft materials and equipment. [[4]]
- Structural threat from aircraft OEMs like Boeing and Airbus becoming more aggressive in expanding in the aftermarket-MRO space. [[4]]
- Major disruption in airborne cargo growth due to the aftermath of a US-China trade war could hurt aircraft PTF conversion demand. [[4]]
ESG Assessment
Risk Rating & Score¹ 30.9 [[5]]
Score Momentum² -0.1 [[5]]
Last Updated 19 Nov 2021 [[5]]
Controversy Score³ (Updated: 07 Jun 2022) 2- Customer Incident [[5]]
Business Model & Industry Issues
- The aviation engineering industry accounts for about 2% of direct CO2 global emissions, expected to increase with air travel expansion. [[5]] STE’s greenhouse gas emissions reduction programme is strong, with carbon intensity moderately declining over the past three years. [[5]]
- The aerospace & defence industry is exposed to bribery and corruption risks. [[5]] STE has a policy of zero tolerance in fraud and corruption practices. [[5]] There were no reported cases of bribery and corruption in 2022. [[5]]
- Being the largest government contractors, the group is entrusted with managing, storing and processing highly confidential information. [[5]] Cyberattacks could result in data breaches and leaks of confidential documents, which can have serious consequences on national security matters, and impact companies’ costs and operations. [[5]]
Material E issues
- In FY22, STE achieved a 30% absolute GHG emissions reduction as compared to FY21. This translated to a 37% reduction in GHG emissions intensity, which is on track to achieve the Group’s target of a 50% reduction by FY30E. [[5]]
- The Group designed eco-engine wash services – EcoPower which has significant environmental benefits. It washes more than 9,000 aircraft engines annually using innovative and environmentally-friendly processes. These result in fuel savings, which translate to an estimated emissions avoidance of 500,000 tonnes CO2e annually as well as the recovery and reuse of around 2m litres of water. [[5]]
- In FY22, STE’s Singapore operations recycled 75% of 5,900 tonnes of waste generated. The recyclables included wood, metal, batteries and paper products. [[5]]
Key G metrics and issues
- STE’s board comprises 13 directors and an alternate director. The current board composition has: 9 independent & non-executive directors, 3 non-independent & non-executive director and 1 executive director/ group president & CEO. There are 2 women directors and 11 men directors on the board. [[5]]
- The nomination, audit, investment and remuneration committees are chaired by independent and non-executive directors. [[5]]
- The board consists of members with established track record in various industries. The company has a majority standard for election of directors and the company has a resignation policy for directors failing to receive a majority of votes. [[5]]
- As of March 2022, STE principal shareholders, with stake sizes in percentage of ordinary shares were as follows: Temasek Holdings (49.8%), Capital Research & Management (3.3%) and BlackRock Fund Advisors (1.4%). [[5]]
- To date, STE has never received or been the subject of any legal action in relation to anti-competitive behaviour and violations of anti-trust and monopoly legislation. There were no reported cases of bribery and corruption in 2021. [[5]]
Material S issues
- Total Group economic contribution of SGD8.7b, which includes: (i) bought in material and services; (ii) employee wages, salaries and benefits; and (iii) dividends and others. [[5]]
- As at end Dec 2021, 78% of the workforce is male while 22% is female with 14% turnover rate. Among them, about 14% of female and 15% of male employees are managers. [[5]]
- In FY22, accident frequency (+37.5% YoY) and severity rate (-5% YoY) per million manhours has been on the uptrend. One of the key factors that contributed to the increase is human error in complying with safety procedures. Key mitigating measures have been imposed through cross sharing of best practices within the global operations. [[5]]
- Positioning employees for the future of work through workforce transformation programmes including upskilling and reskilling initiatives. Average training of 22.5 hours per employee. [[5]]
Financial Statement (SGD m)
| FYE 31 Dec |
FY23A |
FY24A |
FY25E |
FY26E |
FY27E |
| Key Metrics |
|
|
|
|
|
| P/E (reported) (x) |
19.7 |
18.9 |
28.3 |
24.3 |
21.4 |
| Core P/E (x) |
20.7 |
20.7 |
28.3 |
24.3 |
21.4 |
| P/BV (x) |
4.4 |
4.9 |
7.3 |
6.4 |
5.6 |
| P/NTA (x) |
(5.5) |
(8.7) |
(18.5) |
(47.6) |
(75.4) |
| Net dividend yield (%) |
4.1 |
3.6 |
2.4 |
2.5 |
2.7 |
| FCF yield (%) |
nm |
nm |
0.7 |
nm |
nm |
| EV/EBITDA (x) |
12.5 |
12.5 |
15.3 |
13.0 |
11.6 |
| EV/EBIT (x) |
19.9 |
18.8 |
24.0 |
21.4 |
19.4 |
| INCOME STATEMENT (SGD m) |
|
|
|
|
|
| Revenue |
10,101.0 |
11,275.7 |
11,945.9 |
13,158.1 |
14,572.3 |
| EBITDA |
1,456.1 |
1,614.3 |
1,856.4 |
2,172.0 |
2,474.0 |
| Depreciation |
(340.9) |
(355.9) |
(427.9) |
(462.6) |
(498.0) |
| Amortisation |
(200.6) |
(181.9) |
(200.6) |
(200.6) |
(200.6) |
| EBIT |
914.7 |
1,076.5 |
1,184.1 |
1,320.3 |
1,485.3 |
| Net interest income /(exp) |
(210.4) |
(213.8) |
(234.6) |
(207.7) |
(214.3) |
| Associates & JV |
58.1 |
71.0 |
66.5 |
68.2 |
69.8 |
| Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| Other pretax income |
16.5 |
(0.1) |
4.8 |
2.7 |
1.6 |
| Pretax profit |
704.2 |
862.7 |
1,020.8 |
1,183.4 |
1,342.5 |
| Income tax |
(99.8) |
(133.5) |
(153.1) |
(177.5) |
(201.4) |
| Minorities |
(18.0) |
(26.9) |
(26.9) |
(26.9) |
(26.9) |
| Perpetual securities |
0.0 |
0.0 |
0.0 |
0.0 |
1.0 |
| Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| Reported net profit |
586.5 |
702.3 |
840.7 |
979.0 |
1,114.2 |
| Core net profit |
586.5 |
702.3 |
840.7 |
979.0 |
1,114.2 |
| Preferred Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
1.0 |
| BALANCE SHEET (SGD m) |
|
|
|
|
|
| Cash & Short Term Investments |
353.3 |
430.6 |
1,224.4 |
1,209.9 |
341.2 |
| Accounts receivable |
2,139.1 |
2,264.4 |
2,302.5 |
2,536.1 |
2,808.7 |
| Inventory |
4,137.4 |
4,628.7 |
5,002.9 |
5,510.6 |
6,102.9 |
| Reinsurance assets |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| Property, Plant & Equip (net) |
2,076.2 |
2,114.6 |
3,179.8 |
3,351.0 |
3,497.6 |
| Intangible assets |
|
