OCBC Investment Research
Date of Report: 15 August 2025
ST Engineering Ltd: Order Book Soars, Margins Expand—But Is the Valuation Too Rich?
Strong Momentum for ST Engineering Ltd: A Comprehensive Investor Update
Singapore Technologies Engineering (STE), a leading global technology, defence, and engineering group headquartered in Singapore, continues to deliver impressive growth and robust financial performance. The group’s diversified business model and strategic exposure to multi-year defence spending cycles have placed it at the forefront of Asia’s industrial sector. However, with valuations soaring far above historical averages, investors are asking: Is all the upside already priced in?
Investment Thesis: Multi-Faceted Growth in Defence, Aerospace, and Urban Solutions
STE’s unique positioning as a regional defence proxy, integrated aerospace lifecycle provider, and smart city innovator underpins its growth outlook. Key drivers include:
- Significant exposure to defence-related manufacturing amid global spending upcycle.
- Integrated aerospace lifecycle solutions capturing rising MRO (maintenance, repair, overhaul) demand.
- Expansion of passenger-to-freighter conversion business supporting future growth.
Defence contracts represent about one-third of group revenue, and in FY24, STE secured SGD12.6 billion in new contracts, pushing the total order book to SGD28.5 billion.
First Half 2025 Results: Broad-Based Growth and Margin Expansion
STE posted a stellar set of first half results for 2025:
- Revenue: SGD5.9 billion (+7% YoY, +8% ex-FX)
- EBITDA: SGD871 million (+11% YoY)
- EBIT: SGD602 million (+15% YoY)
- PATMI: SGD403 million (+20% YoY)
Growth was supported by margin improvement, tight cost management, and increased project volume. STE declared a dividend of 4.0 Singapore cents per share in 2Q25, totaling 8 cents for 1H25, unchanged from last year.
| Segment |
Revenue (SGD m, 1H25) |
YoY Change |
EBIT (SGD m, 1H25) |
YoY EBIT Change |
| Commercial Aerospace |
2,300 |
+5% |
223 |
+18% |
| Defence & Public Security |
2,600 |
+12% |
367 |
+13% |
| Urban Solutions & Satcom |
921 |
0% |
12 |
+32% |
Order Book Strength and Segment Performance
STE’s contract win rate accelerated in 1H25, with SGD9.1 billion in new contracts secured. The total order book reached SGD31.2 billion (+18% YoY) as of 30 June 2025. Management expects SGD5.0 billion of this to be delivered in the remainder of 2025, providing solid revenue visibility.
- Commercial Aerospace: Revenue climbed 5% YoY to SGD2.3 billion, led by Engine MRO and nacelle services, though partially offset by slower passenger-to-freighter demand. EBIT surged 18% to SGD223 million, reflecting margin improvement and efficiency gains.
- Defence & Public Security: Revenue advanced 12% YoY to SGD2.6 billion, with EBIT up 13% to SGD367 million. Growth is seen as structural, with opportunities in the Middle East and Eastern Europe.
- Urban Solutions & Satcom: Revenue held steady at SGD921 million, but EBIT climbed 32% YoY due to a better margin mix and disciplined cost control.
Financial Performance and Outlook
STE’s financials illustrate a consistent upward trend in revenue, earnings, and dividends. The following table summarizes key financial metrics:
| 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 |
0.22 |
0.28 |
0.32 |
| DPS (S cents) |
17.0 |
18.0 |
19.4 |
Key ratios for FY24, FY25E, and FY26E:
- Operating margin: 9.5% (FY24), 10.1% (FY25E), 10.4% (FY26E)
- Net profit margin: 6.2% (FY24), 6.9% (FY25E), 7.3% (FY26E)
- Dividend yield: 2.0% (FY24), 2.1% (FY25E), 2.3% (FY26E)
Valuation Analysis: STE and Peer Comparison
STE’s share price currently trades at 28x forward P/E, about 3 standard deviations above its historical average—highlighting that much of the growth may already be embedded in the valuation.
| Company |
P/E FY25E |
P/E FY26E |
P/B FY25E |
P/B FY26E |
EV/EBITDA FY25E |
EV/EBITDA FY26E |
Div Yield FY25E (%) |
Div Yield FY26E (%) |
ROE FY25E (%) |
ROE FY26E (%) |
| ST Engineering (STEG.SI) |
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 |
Key Catalysts and Risks for Investors
Potential Catalysts:
- Aerospace segment recovery
- Significant contract wins in electronics
- Better-than-expected margins from projects
Potential Risks:
- Decline in oil prices affecting marine business
- Lower-than-expected margins on new contracts
- Post-acquisition integration challenges
- Slower-than-expected recovery in aerospace
Company Overview and Segment Breakdown
STE operates across four continents and serves customers in over 100 countries. It ranks among the largest firms on the Singapore Exchange.
| Segment |
FY24 Revenue (%) |
FY24 EBIT (%) |
| Defence & Public Security |
44.0 |
59.0 |
| Commercial Aerospace |
38.7 |
37.2 |
| Urban Solutions & Satcom |
17.0 |
3.7 |
Geographic revenue breakdown for FY24:
- Asia: 51.4%
- US: 23.0%
- Europe: 18.9%
- Others: 6.7%
Dividend Consistency
STE has maintained a stable dividend payout trajectory over the years, with DPS rising from 15 cents in FY17 to 17 cents in FY24.
Key Financials: Income Statement and Ratios (FY2020–FY2024)
| 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 |
| Basic EPS (SGD) |
0.2 |
0.2 |
0.2 |
0.2 |
0.2 |
Profitability and Credit Ratios:
- Return on Common Equity: 27.38% (FY24)
- Net Income Margin: 6.23% (FY24)
- Effective Tax Rate: 15.47% (FY24)
- Dividend Payout Ratio: 76.06% (FY24)
- Total Debt/EBIT: 3.95x (FY24)
- Net Debt/Equity: 1.44x (FY24)
Conclusion: Is STE a Buy, Hold, or Sell?
OCBC Investment Research maintains a “HOLD” rating for ST Engineering Ltd, reflecting the view that while the company’s strategic positioning, strong order book, and margin expansion provide confidence in future growth, the current valuation is “rich” and much of the upside may already be priced in. Investors should monitor sector catalysts and risks closely, and consider STE’s solid fundamentals along with peer valuations before making allocation decisions.
Broker Rating System Overview
- BUY: Expected returns (ex-dividends) >10%
- HOLD: Expected returns (ex-dividends) between +10% and -5%
- SELL: Expected returns (ex-dividends) < -5%
- For market caps S\$150m and below, thresholds are higher (+/-30%)
Final Thoughts for Investors
ST Engineering stands out for its resilience, order book visibility, and operational strength. However, investors should weigh the rich valuation against future growth prospects and sector risks before committing additional capital. The HOLD rating signals an expectation of moderate returns within the next 12 months, making STE a stock to watch—but not chase—unless new catalysts emerge or the valuation adjusts.
