OCBC Investment Research
Date of Report: 29 August 2025
ST Engineering: Riding the Global Defence Upcycle – Why This Singapore Giant Stands Out Now
Introduction: A Prime Defensive and Aerospace Play
Singapore Technologies Engineering Ltd (ST Engineering, STE) has emerged as a top pick for investors looking to capitalize on the ongoing global surge in defence spending and the rebound in commercial aerospace. Backed by a stellar order book, robust fundamentals, and diversified business exposure, STE is well-positioned for sustainable long-term growth. This comprehensive report dissects the latest performance, outlook, and comparative analysis against global peers, making it an essential read for market participants.
Investment Thesis: Accumulate on Corrections for Long-Term Gains
ST Engineering is one of Asia’s premier defence proxies, offering rare regional exposure to the multiyear global rearmament cycle. The company’s strength lies in:
- Defence Manufacturing Exposure: About one-third of STE’s revenues are defence-related, benefiting directly from rising global military budgets.
- Integrated Aerospace Solutions: STE’s lifecycle solutions enable the company to capture a larger share of the lucrative maintenance, repair, and overhaul (MRO) market.
- Freighter Conversions: The continued ramp-up of its passenger-to-freighter conversion business supports growth as air cargo demand rises.
In FY24, STE secured new contracts worth SGD 12.6 billion, taking its total order book to SGD 28.5 billion—a testament to its strong market position and execution capabilities.
Recent Share Price Performance: Opportunity Amid Pullback
STE’s share price surged more than 60% year-to-date, following a strong 20% gain in 2024. The recent dip is mainly attributed to profit-taking and optimism over a potential Russia-Ukraine ceasefire, a pattern echoed among global defence stocks. However, the company’s fundamentals remain sound, with management reaffirming strong revenue visibility and execution confidence for 2025.
Order Book and Growth Visibility
As of 30 June 2025, STE’s order book hit a record SGD 31.2 billion, up 18% year-over-year. Of this, around SGD 5.0 billion is scheduled for delivery in the second half of 2025, underpinning robust revenue visibility. Management remains bullish, citing structural drivers such as aging defence systems and enduring global security threats, which ensure that elevated defence spending is here to stay—even if geopolitical tensions ease.
Key Investment Catalysts Ahead
- Aerospace Recovery: Continued rebound in the commercial aerospace segment.
- Electronics Growth: Significant contract wins in the electronics business could surprise to the upside.
- Margin Upside: Potential for better-than-expected project margins due to operational efficiencies.
Risks to Watch
- Oil price declines could pressure the marine segment.
- Lower-than-expected margins for new contracts.
- Integration challenges from recent acquisitions.
- Slower-than-expected aerospace recovery.
Valuation and Peer Comparison
| 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) |
16.6 |
15.4 |
2.3 |
2.5 |
31.1 |
29.9 |
2.3 |
2.5 |
31.1 |
29.9 |
| SIA Engineering (SIAE.SI) |
20.5 |
18.4 |
0.3 |
0.3 |
29.4 |
25.2 |
3.1 |
3.2 |
9.7 |
10.4 |
| Northrop Grumman (NOC) |
23.1 |
20.4 |
5.4 |
5.2 |
16.7 |
15.4 |
1.5 |
1.6 |
23.9 |
25.7 |
| BAE Systems (BAES.L) |
23.5 |
21.1 |
4.2 |
3.9 |
14.3 |
13.3 |
2.0 |
2.2 |
18.6 |
19.0 |
| Rheinmetall AG (RHMG.DE) |
56.8 |
37.9 |
14.4 |
11.2 |
31.3 |
22.2 |
0.7 |
1.0 |
27.9 |
32.3 |
Company Overview: A Diversified Technology Powerhouse
ST Engineering is a global technology, defence, and engineering group headquartered in Singapore. It operates across four main segments:
- Defence & Public Security (44% of FY24 revenue)
- Commercial Aerospace (38.7%)
- Urban Solutions & Satcom (17%)
Geographically, the company draws 51.4% of revenue from Asia, 23% from the US, 18.9% from Europe, and 6.7% from other regions. STE serves customers in over 100 countries and ranks among the largest companies on the Singapore Exchange.
Business Segment Performance and Geographical Spread
| 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% |
| Region |
% FY24 Revenue |
| Asia |
51.4% |
| US |
23.0% |
| Europe |
18.9% |
| Others |
6.7% |
Financial Highlights and Trends
| Metric |
FY2020 |
FY2021 |
FY2022 |
FY2023 |
FY2024 |
FY2025E |
FY2026E |
| Revenue (SGD m) |
7,158.3 |
7,692.9 |
9,035.1 |
10,101.0 |
11,275.7 |
12,418 |
13,612 |
| EBIT (SGD m) |
566.0 |
657.7 |
701.8 |
856.6 |
1,005.5 |
1,253 |
1,420 |
| Net Profit (SGD m) |
521.8 |
570.5 |
535.0 |
586.5 |
702.3 |
862.6 |
997.3 |
| EPS (SGD) |
0.2 |
0.2 |
0.2 |
0.2 |
0.22 |
0.28 |
0.32 |
| DPS (S cents) |
15.0 |
15.0 |
15.0 |
16.0 |
17.0 |
18.0 |
19.4 |
Profitability and Leverage Metrics
| Metric |
FY2020 |
FY2021 |
FY2022 |
FY2023 |
FY2024 |
| Return on Common Equity (%) |
23.12 |
24.25 |
22.24 |
24.15 |
27.38 |
| Return on Assets (%) |
5.40 |
5.54 |
4.26 |
3.98 |
4.62 |
| Operating Margin (%) |
7.91 |
8.55 |
7.77 |
8.48 |
8.92 |
| Net Income Margin (%) |
7.29 |
7.42 |
5.92 |
5.81 |
6.23 |
| Dividend Payout Ratio (%) |
90.14 |
82.43 |
93.76 |
85.00 |
76.06 |
| Total Debt/EBIT |
2.89 |
2.72 |
5.76 |
4.94 |
3.95 |
Dividend Track Record
STE has demonstrated a consistent commitment to rewarding shareholders, with dividends per share increasing steadily from S\$0.15 in FY17 to S\$0.17 in FY24, with further increases forecast in the coming years.
Ownership Structure and Market Stats
- Ticker: STEG.SI
- Market Cap (USD): 18.6 billion
- Daily Turnover (SGD): 7.7 million
- Free Float: 47%
- Shares Outstanding: 3,121 million
- Top Shareholder: Temasek Holdings Pte. Ltd. (50.9%)
Conclusion: A Structural Winner Amid Global Uncertainty
ST Engineering stands out as a high-quality name in the industrials and defence sector, offering superior earnings visibility, an expanding order book, and multi-segment growth drivers. The current pullback presents a compelling accumulation opportunity, with the long-term growth story underpinned by global defence uptrend, commercial aerospace recovery, and innovation-led solutions. With a fair value estimate of SGD 8.90 and a BUY rating, STE is poised to deliver superior risk-adjusted returns for discerning investors.
Disclosure and Ratings Framework
OCBC Investment Research’s BUY rating is a medium-term call within a 12-month horizon, indicating expected returns in excess of 10% (excluding dividends). For companies with a market cap above S\$150 million, this framework ensures clarity on risk and reward for investors.
Legal and Analyst Disclosure
This report is for informational purposes only, not a recommendation or offer. Investors should seek independent advice tailored to their personal financial circumstances before taking investment action. OCBC and its affiliates may have interests in the securities mentioned.
About OCBC Investment Research
OCBC Investment Research is a leading provider of equity research in Singapore and the region, offering timely and in-depth analysis for institutional and retail investors alike.
