Other targets set in 2021 include net profits growing in-line with revenue, the commercial aerospace (CA) business and smart city revenue to achieve more than $3.5 billion each by FY2026 and lastly, digital business revenue to triple to above $500 million.
On this, Tan and Lim write: “CA has exceeded the target set in FY2023. Digital business is on track to exceed its target by FY2024, as it achieved revenue of $463 million in FY2023 and annualised FY2024 of more than $580 million. However, there could be some delays for smart city as we forecast urban solutions revenue of $2.3 billion by FY2026.”
ST Engineering’s investor day in March 2025 is slated to provide updates on new targets. CGSI believes the key difference between its previous targets and the 2025 investors’ day is the international defence business, which accelerated faster than expected over the past three years due to heightened geopolitical tension.
Tan and Lim continue that the previously communicated 2021 total addressable market (TAM) in international defence of US$5 billion ($6.7 billion) from 2022 to 2027 could be revised upward, with more information to be shared on markets in Eastern Europe and the Middle East.
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The analysts note that most investors were positive on the outlook for the group’s defence business given the milestones achieved over the past few years, adding that defence-related business forms about 30% of ST Engineering’s group revenue as of 1HFY2024, with Singapore being the largest market.
“Among the large-cap industrial names under our coverage, ST Engineering’s earnings could be the most defensive with an around 15% y-o-y growth in FY2025, driven by execution of projects from its orderbook of $26.9 billion,” write the analysts.
ST Engineering has also recently announced a strategic agreement with Kazakhstan Paramount Engineering (KPE) to set up in-country production capability for a new 8x8 amphibious multi-purpose armoured vehicle.
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On this, Tan and Lim write: “Although the amount of contract is undisclosed and may not be material for now, we believe this approach addresses capacity constraints as well as potential supply chain issues.”
Overall, the analysts believe capital management could be a focus area as the group prides itself on being one of ‘yield and growth’.
“If there is no transformational M&A, we think the priority for the group would be to repay debt over the next three years. We see room for a higher dividend per share (DPS) of 18 cents or 19 cents based on a payout of around 70% for FY2025 and FY2026 respectively.”
The analysts are keeping their “add” call on ST Engineering with a target price of $5.30.
As at 11.48 am, shares in ST Engineering are trading 4 cents lower or 0.88% down at $4.51.
