Views on the company&rsquo s outlook, however, are mixed

 

[SINGAPORE] Analysts on Thursday (Apr 2) viewed ST Engineering&rsquo s latest contract win positively, but at least one flagged a possible de-escalation in Middle East tensions as a reason not to get into the stock right now.

 

The defence technology player on Wednesday announced a S$600 million six-year subcontract win from Abu Dhabi Ship Building to design and supply the platform systems for eight Kuwaiti navy gunboats.

 

DBS on Thursday raised its target price for ST Engineering to S$12.40, from S$11 previously, flagging an &ldquo improving defence visibility and a higher-quality earnings mix&rdquo .

 

In a Wednesday note, it pointed to an &ldquo international defence inflection point emerging alongside already strong aerospace earnings momentum&rdquo .

 

&ldquo Commercial aerospace should continue to see strong earnings momentum, driven by extended asset utilisation and tight supply-demand conditions in MRO (maintenance, repair and overhaul), while defence is beginning to scale as international orders come through,&rdquo it added. 

 

This is being reflected in ST Engineering&rsquo s subcontract win, DBS pointed out, noting also that it brings the company&rsquo s &ldquo total international defence contracts secured to around S$1.07 billion year-to-date, tracking well ahead of the full-year target of S$1.2 billion&rdquo .

 

CGS International (CGSI), meanwhile, believes ST Engineering &ldquo was able to capture a higher value for the latest contract due to the expanded scope&rdquo , citing the scope of contract requirements. 

 

&ldquo We believe this win reinforces ST Engineering&rsquo s growing presence in the Middle East,&rdquo it said on Thursday, further noting that the company won its first defence MRO contract &ndash worth S$470 million &ndash for the Qatar Emiri Land Forces in February.

 

&ldquo Take a breather&rdquo

Citi analyst Luis Hilado, in a Wednesday note, said that this &ldquo establishes a healthy relationship track record that could result in future additional contracts&rdquo . 

 

ST Engineering, Asian defence peers rally as Middle East conflict deepens, but war not seen as a spending catalyst

 

The brokerage maintained a &ldquo neutral&rdquo call, but set a lower target price of S$10.65.

 

The Kuwait win builds on ST Engineering&rsquo s existing relationship with Abu Dhabi Ship Building it previously supported the Middle East company in 2021 with design and equipment for four offshore patrol vessels for the United Arab Emirates Navy. 

 

CGSI downgraded   ST Engineering   : S63 -0.63% from &ldquo add&rdquo to &ldquo hold&rdquo , deeming the stock fairly valued despite viewing its growing Middle East presence positively. 

 

&ldquo We recommend investors take a breather amid potential de-escalation in Middle East tensions and rotate into other industrial names with more attractive risk-reward, said CGSI analysts Lim Siew Khee and Meghana Kande.

 

They added that ST Engineering, which is trading at a 30-times forecast price-to-earnings ratio for 2027, &ldquo largely prices in its 16 to 17 per cent earnings growth&rdquo for FY2026 and FY2027.

 

&ldquo It also represents a premium over larger defence peers&rsquo 25-times (ratio),&rdquo they said, keeping their target price for the company at S$11.05.

 

Still, the analysts noted that negotiations for the latest win could have been ongoing for an extended period and may not have been linked to the Iran war.

 

Factors weighing on outlook

DBS analyst Jason Sum projected a 20 per cent compound annual growth rate in core net profit through FY2027. 

 

This trajectory is expected to be fuelled by expanding MRO capacity and faster project execution, alongside margin improvements driven by operating leverage and lower interest costs.

 

He also noted that rising procurement budgets in Europe and the Middle East, especially for equipment, have &ldquo expanded the company&rsquo s export runway&rdquo , with previous investments in research and development, partnerships and marketing now set to deliver returns. 

 

CGSI, on the other hand, expects order conversion to be uneven, despite an international defence market worth over US$11 billion &ndash a figure that is still backed by a structural shift towards self-sufficiency.

 

Outside of defence, CGSI expects opportunities for ST Engineering&rsquo s urban solutions and satellite communications segment in smart city and infrastructure rebuilding initiatives in the Middle East. 

 

DBS&rsquo Sum echoed the sentiment, stating that &ldquo smart-city demand is accelerating&rdquo , boosting the company&rsquo s growth. He added that its mergers and acquisitions strategy is likely to provide further uplift.

 

However, CGSI noted that such a boost could be tempered by commercial aerospace headwinds, where &ldquo elevated jet fuel costs could lead airlines to defer non-critical MRO spending, potentially moderating near-term order momentum&rdquo .

Analysts say long-term growth drivers, such as Europe&rsquo s rearmament push, are a bigger factor

 

[SINGAPORE] Asian defence counters have surged as the Middle East conflict entered its fourth week, with analysts expecting further upside after strong gains in 2025.

 

However, the longer-term trajectory for defence spending remains anchored to structural global drivers &ndash including the US&rsquo &ldquo America First&rdquo stance and Europe&rsquo s rearmament push &ndash rather than any single conflict, they said.

 

&ldquo The war on Iran should not change the fundamental outlook for defence spending because countries who have not built or upgraded their defence forces were already in the process of budgeting this into their spending,&rdquo said Lorraine Tan, director of equity research in Asia at Morningstar.

 

&ldquo The trigger for the spending was the realisation that one can&rsquo t rely solely on the US for assistance, and also learning from how Ukraine has had to scramble to borrow equipment,&rdquo she added, referring to the ongoing Russia-Ukraine war.

 

Since the US and Israel struck targets in Iran on Feb 28, what some had expected to be a short-lived conflict has broadened across the Gulf region as Teheran retaliated, pushing up energy prices and stoking global inflationary fears.

 

Even so, defence contractors have emerged as clear beneficiaries of investor interest, amid expectations that a prolonged conflict will lift demand for munitions and accelerate procurement cycles.

 

Associate Professor Goh Puay Guan of National University of Singapore Business School said: &ldquo Asian suppliers are providing components for weapon systems, but could also be making and providing the end weapon products.&rdquo

 

He added: &ldquo This increase in demand can also be seen in the rise in share prices of publicly traded defence-related companies in the last one year, vastly outperforming market indices.&rdquo

 

For instance, Singapore&rsquo s   ST Engineering&rsquo s   : S63 -1.83% stock has risen 7.7 per cent since Feb 28 and 27.6 per cent in the year to date, based on Monday&rsquo s (Mar 23) close of S$10.74. This makes it the top-performing blue-chip counter on the Straits Times Index on both counts.

 

Across the region, other major defence contractors have also posted robust gains. 

 

In the year to date, South Korea&rsquo s Hanwha Corp is up 33.7 per cent and Korea Aerospace Industries by 45.5 per cent. Meanwhile, Japan&rsquo s Mitsubishi Heavy Industries has gained 8.5 per cent and Kawasaki Heavy Industries has advanced 37.2 per cent in the same period.

 

By comparison, the global benchmark S& P 500 has fallen 5.1 per cent since the beginning of the year.

 

Structural drivers

However, analysts stressed that the recent rally in Asian defence contractors&rsquo share prices is tied more to long-term growth drivers than to the US-Iran conflict alone.

 

In 2025, Asia&rsquo s defence spending rose 5.7 per cent in real terms to US$573 billion, marginally faster than the 5.5 per cent growth recorded in 2024, based on figures from the International Institute for Strategic Studies.

 

OCBC equity research analyst Ada Lim wrote in a note on Thursday that, while China &ldquo dominates&rdquo Asia&rsquo s defence spending, South Korea and Japan have also pencilled in record defence budgets for 2026.

 

The increased spending by South Korea and Japan should benefit their domestic champions, Lim and fellow analyst Chu Peng told The Business Times separately.

 

This comes as Asian countries prioritise local sourcing for defence needs, in line with the Trump administration&rsquo s &ldquo America First&rdquo and defence burden-sharing policy.

 

At the same time, global rearmament demand &ndash particularly in Europe &ndash is &ldquo increasingly met&rdquo by Asian firms, observed Lim, citing ST Engineering&rsquo s 2025 partnership with Italian contractors Leonardo and Aris to offer the Bronco 3 vehicle to the Italian military as one example.

 

&ldquo ST Engineering is one of our preferred industrial names (it) doubled international defence order wins from S$300 million to S$600 million in FY2025, and is confident to double it again in FY2026,&rdquo said Lim and Chu.

 

While the stock is trading at a forward 12-month price-to-earnings ratio of about 32 times &ndash above its long-term average of 20.5 times &ndash it remains at a discount to global aerospace and defence peers, which trade closer to 44 times, they added.

 

Maybank analysts Krishna Guha and Jarick Seet, in a Mar 14 report, similarly expressed bullishness on ST Engineering&rsquo s growth potential, rating it a &ldquo buy&rdquo with a target price of S$12.50, up from a previous &ldquo hold&rdquo rating and S$9.50 target.

 

Satellite communications firm   Addvalue Technologies   : A31 -4.6% was also cited as the research house&rsquo s top small and mid-cap pick on the Singapore Exchange.

 

This followed Singapore&rsquo s Budget 2026 statement, where Prime Minister and Finance Minister Lawrence Wong said that the Republic is prepared to spend more than the typical 3 per cent of gross domestic product on defence if needed, partly due to unmanned warfare and cybersecurity concerns.

 

The Maybank analysts added: &ldquo We believe ST Engineering and Addvalue are key beneficiaries of rising defence spending and increasing use of unmanned systems (such as drones) for warfare.&rdquo

The Smart Investor' s ST Engineering (S63) article is accurate overall&mdash strong results, defensive appeal, but pricey valuation. Here' s a layman-friendly breakdown, validation, and rebuttal (if needed), condensed for easy reading.

Key Facts: All Verified ✅

• 
  
  Business: Diversified into aerospace repair, defense gear, and smart cities/satcom. Global ops, long contracts = steady revenue.minichart+1
• 
  
  FY2025 Results (ended Dec 2025): Revenue up 9% to S$12.3B base net profit up 21% to S$851M (reported was lower at S$463M due to one-offs). Order book at record S$33.2B (~3x revenue). Dividend S$0.23/share (yield ~2.1-2.2%). Debt/EBITDA improved to 2.7x. ROE up to ~28.7%.stengg+2
• 
  
  Share Performance: Up ~84% past year (to ~S$10.94 as of mid-March 2026).growbeansprout+1

Why It' s Defensive: Makes Sense

• 
  
  Order Book Protection: S$33.2B backlog (S$9.9B deliverable 2026) from gov' t defense (recession-proof) and big clients.minichart+1
• 
  
  Diversification: 3 segments spread risks&mdash no single weak spot.
• 
  
  Dividends: Reliable payer, building trust for income seekers.

Growth Tailwinds: Realistic

• 
  
  Defense boom from geopolitics (e.g., Middle East).
• 
  
  Aviation rebound for aerospace.
• 
  
  Smart cities worldwide for USS.
  Contract wins hit S$18.7B in 2025 (up 49%).finance.yahoo+1

Valuation Warning: Biggest Point&mdash Fair Critique

• 
  
  Forward P/E ~33.9x (vs. 5-yr avg ~19.8x). Trailing P/E even higher (~30-50x depending on metric).companiesmarketcap+2
• 
  
  No Rebuttal Needed: Article' s right&mdash stock rallied on results + defense hype, baking in big growth. Overpaying kills long-term returns (e.g., every extra dollar paid now compounds less over 20 yrs).