Analysts have raised their target price on ST Engineering (STE) following its March 18 investor day, where the defence and technology company unveiled its five-year revenue and net profit targets until FY2029.
Among them, the biggest target price increase comes from CGS International Research. CGSI analysts Kenneth Tan and Lim Siew Khee say the five-year plans are “solid” and STE is “entering a multi-year earnings cycle”.
In a March 18 note, Tan and Lim maintain “add” on STE with a higher target price of $7.40 from $5.60 previously. “We see a stronger and clearer earnings growth trajectory supported by a multi-year defence spending upcycle, satellite communications (satcom) turnaround and tapering finance costs.”
STE’s leaders unveiled a $17 billion revenue target by FY2029, which indicates a CAGR of 9%, ahead of both CGSI and consensus estimates.
STE also expects net profit CAGR to exceed revenue CAGR by up to 5 percentage points (ppts), owing to better operating leverage, improved sales mix and cost savings.
The group will also shift to a payout-based dividend per share (DPS), with incremental DPS amounting to one-third of y-o-y net profit increase from FY2026. According to CGSI’s estimates, this translates to a 1 cent DPS increase per annum.
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In particular, STE highlights a “large addressable market” in international defence worth US$11 billion over the next five years, underpinned by heightened defence spending amid rising geopolitical tensions, particularly in Europe and the Middle East.
STE’s FY2029 defence revenue target of $7.5 billion was a “positive surprise” for CGSI’s analysts, and they see this as a reflection of STE’s confidence in its growth prospects.
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‘Track record of beating guidance’
Shares in STE have surged 40% year to date. With the “clear” five-year growth glide path set out by management, Citi Research analyst Luis Hilado believes the share price outperformance will continue.
“With a positive longer-term outlook, we assume the market will value STE on its FY2026 prospects,” says Hilado in a March 18 note. He is keeping “buy” on STE with a higher target price of $7.22, from S$6.10 previously.
Aside from STE’s defence business, its urban solutions and satcom (USS) division is expected to grow revenue from $2 billion today to $3.2 billion by FY2029.
Meanwhile, STE expects its commercial aerospace (CA) division to hit $6 billion in revenue by FY2029, driven by strong demand for STE’s maintenance, repair and operations (MRO) services and aerostructure and system products. “CA continues to benefit from positive airline industry momentum,” says Hilado.
‘Aggressive growth targets’
UOB Kay Hian Research analyst Roy Chen, too, raised his target price on STE to $6.80 from $5.55 previously, while maintaining “buy” on the stock.
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In a March 19 note, Chen calls STE’s growth targets “aggressive”, but he is confident the company can deliver, given its “strong track record”.
“As a review of STE’s performance in the past few years against its 2026 growth targets, by 2024 STE had already achieved: group revenue of over $11 billon, commercial aerospace revenue of over $3.5 billion and digital business revenue of over $0.5 billion, two years ahead of its targeted deadline,” notes Chen.
Some other 2026 targets, such as smart city revenue of $3.5 billion and sustainability-linked revenue of over $3.0 billion remain on track, he adds.
In addition, STE’s record-high orderbook of $28.5 billion as at end-2024 also provides good growth visibility, says Chen. “We expect STE to sustain a healthy contract win momentum in the next few years across its three business segments.”
Chen also praises STE for retaining enough capital to fuel growth. “We like STE’s new dividend policy, which gives better predictability for STE’s dividend growth while allowing the company to retain enough capital to capture future growth/investment opportunities, either organically or inorganically.”
Based on Chen’s earnings projection, this will lead to STE’s dividend growing to 19.1 cents in FY2026 and 20.3 cents in FY2027.
‘Narrow-moat’ STE ‘fairly valued’
Singing a different tune is Morningstar Equity Research analyst Lorraine Tan, who thinks “narrow-moat” STE “is currently fairly valued” especially after the recent rally. “In our view, room to the upside depends on the company's possible acquisitions to boost earnings further.”
In particular, STE’s revised dividend policy implies that the payout ratio will fall to around 54% in 2029 from 76% in 2024.
STE’s five-year dividend CAGR of 7.1% is slower than Tan’s previous assumption of 8.9%. “With higher cash retained, we think STE should be poised to make material acquisitions from 2028 depending on the size.”
Tan thinks STE’s gearing also shows proof of coming M&A. “As net gearing is declining to a comfortable 0.7 times in 2029, we think the company is poised to make material acquisitions from 2028,” says Tan in a March 18 note.
Tan has a three-star rating on STE against Morningstar’s five-tier scale, and she has raised her fair value estimate to $6.50 from $5.60 previously.
STE is targeting further cost savings of around $1 billion by 2029. “We think this supports our assumptions for margin expansion, and we have not changed our view for a gradual improvement in operating margin to 9.8% in FY2029 from 8.9% in FY2024,” says Tan.
As at 4.33pm, shares in STE are trading 14 cents higher, or 2.2% up, at $6.52. STE shares have soared 40% year to date and are up 27.6% over the past month.
Charts: ST Engineering
