Shares of ST Engineering soared over 8 per cent on Monday, as it continued building on big gains in the past week.
The stock leaped from S$5.10 a week ago to a high of S$5.89 on Monday – marking a 15.5 per cent weekly increase and a total gain of around 21 per cent in the past month.
The defence and engineering group reported a net profit of S$365.7 million on Feb 27 for the second half ended Dec 31, a 19.6 per cent increase from S$305.9 million in the previous corresponding period.
The company’s revenue rise of 9.9 per cent to S$5.8 billion, from S$5.2 billion, was mainly driven by the defence and public security, as well as commercial aerospace segments.
Maybank upgraded the stock to “buy” on Feb 28, on the back of “continued growth, better margins and nascent turnaround in the satcom (satellite communications) business”.
Maybank and CGS International raised the stock’s target price to S$5.70 and S$5.60, respectively. Phillip Securities Research raised the target price to S$6.10.
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“We expect ST Engineering to maintain its strong earnings growth momentum in 2025, and given its strong [free cash flow] generation, we think it can gradually raise dividends in 2025-2027,” said RHB analysts.
ST Engineering’s board proposed a final dividend of S$0.05 per share, up from S$0.04 per share in the previous year. The dividend will be paid on May 15, following the record date of Apr 30. This takes the group’s dividend for the full year to S$0.17 per share, slightly higher than S$0.16 per share in FY2023.
Defence and public security revenue grew 20 per cent to S$2.6 billion, from S$2.1 billion. OCBC’s investment research team noted that the group is currently experiencing a multi-year defence spending upcycle.
“ST Engineering sees strong demand for its defence products and solutions, driven in part by ongoing conflicts and heightened geopolitical tensions,” said CGS International in a Feb 27 note.
The company’s largest segment is expected to see a six per cent compound annual growth rate (CAGR) in earnings before interest and taxes in 2024-2027, according to RHB’s Feb 28 report.
Meanwhile, commercial aerospace revenue rose 5 per cent to S$2.2 billion from S$2.1 billion. STE’s integrated aerospace solutions have enabled it to better capture maintenance, repair and overhaul (MRO) spend, according to the OCBC research report.
CGS International projects margin expansion in this segment due to continued demand for MRO services. It also expects medium-term revenue growth to outpace the industry as a result of strong competitive positioning and growth initiatives.
Analysts highlighted potential risks, with Maybank citing moderation of growth and margins in commercial aerospace, and RHB noting that the group’s international defence business could see “strong tailwinds amidst elevated geopolitical uncertainty in Europe”.
ST Engineering sources mainly from suppliers in the US for its commercial aerospace business there. The suppliers may be affected by the supply chain coming from outside the US, but the eventual impact remains uncertain, subject to the final tariff policy.
The Trump administration also reversed federal approval for New York City’s congestion pricing programme on Feb 19. ST Engineering’s subsidiary in the US, TransCore, runs the contract. However, analysts are forecasting just a slight dampening of investor sentiment with minimal direct impact on the stock.
As at end-2024, ST Engineering’s order book came in at S$28.5 billion. This was led by strong contract wins of S$4.3 billion in the last quarter, said Maybank. The group expects to deliver about S$8.8 billion from its order book in 2025.
