"Defence stocks continue to find favour in the current global environment," she says, alluding to the multi-year defence spending upcycle that is taking place across the world.
The company is now trading at a forward 12-month PE of 29.9x, above its historical average of 20.5x, but still at a discount to selected global aerospace and defence peers, which trade closer to an average of 47.6x.
"Given the evolving geopolitical backdrop, we believe historical comparisons are less relevant for assessing current valuations," says Chu.
She expects the re-rating to continue as STE’s international defence exposure gains greater visibility amid rising global defence budgets and accelerating procurement cycles.
See also: Lim & Tan Securities ups CNMC Goldmine’s TP to $1.53; says it’s a ‘great time’ to be a ‘gold digger’
Besides defence, the company is seeing other growth drivers, such as its integrated aerospace lifecycle fleet solutions can better capture the growth in maintenance, repair and overhaul spend.
In addition, the continued ramp-up of its passenger-to-freighter conversion business will support growth.
Chu flags that one-off items will mask the company's resilient core performance and strong order visibility.
See also: Loh of UOB Kay Hian wishes CDL a 'more pleasant Chinese New Year', raises target price to $11.50
Specifically, in FY2025, the company divested units such as LeeBoy, SPTe, CityCab and STARCO for a total gain of $306 million.
However, this was offset by impairment losses of $689m related to iDirect and JetTalk, which will lead to net one-off loss of $383 million.
"Despite these impairments, we believe ST Engineering’s core businesses remained resilient with robust order momentum," says Chu, noting that the company's total order book stands at around $28.5 billion.
ST Engineering's share price has gained around 14% year to date, extending a surge of 81% in 2025 - marking its third consecutive year of outperforming the benchmark Straits Times Index.
"The outperformance reflects structural growth in the defence sector, ST Engineering’s robust order book, and disciplined capital management," says Chu.
ST Engineering shares traded at $9.58 as at 4.47 pm, up 0.52%.
