The contract value, as with almost all defence orders, was not disclosed by the company, but CGS International (CGSI) analysts Lim Siew Khee and Meghana Kande estimate the quantum to be between $1 and 2 billion, which will help lift the company’s order book, last disclosed at $32.6 billion as of September, to a new record. In total, STE is estimated to have secured contract wins between $19 and 20 billion in FY2025 — the highest level in five years.
On Jan 28, the company announced that in 4QFY2025, it won total orders worth $4.7 billion, bringing FY2025 total to $18.7 billion, a surge of 49% over FY2024.
For 2HFY2025 results on Feb 27, Lim and Kande expect the company to report a 12% h-o-h increase in core earnings to $450 million. Besides the seasonally stronger second half, other drivers include higher ebit margins in 2HFY2025 of 10.8% for its commercial aerospace business, up from 9.5% in 1HFY2025.
However, they expect margins from the defence & public security sector to remain slightly lower in 2HFY2025 at 12%, versus 1HFY2025’s 14% due to seasonally weaker execution of milestone projects.
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They expect FY2025 earnings to be $471 million, up from an earlier estimate of $423 million, reflecting gains from the divestment of its stake in the Maintenance, Repair and Operations (MRO) joint venture last month. For FY2024, the company reported earnings of $702 million.
The drop between FY2024 and FY2025 was already flagged when the company reported its 3QFY2025 results last November. After years of trying to turn around its struggling satellite business, the company will book an impairment of $667 million and is exploring options for the business.
Even with this impairment, the company has guided for higher dividends in absolute terms. Last November, when it reported its 3QFY2025 results, STE had already committed to paying a final and special dividend totalling 11 cents, bringing its FY2025 payout to 23 cents. In contrast, the company paid 17 cents for the whole of FY2024.
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With this recent Terrex s5 win, Lim and Kande are upbeat that the company may clinch other land platform deals, such as the Bronco and Terrex 8x8, from Italy, Finland, Austria, and the Middle East in the near term. “We believe winning international platform contracts is a key catalyst,” state the analysts, whose revised target price of $10.20, up from $9.50, is pegged at three standard deviations above the company’s 17-year mean.
Similarly, on Jan 28, Jason Sum of DBS Group Research, citing multiple growth drivers across commercial aerospace and defence, backed by strong order visibility, maintained his $10.20 target price, having raised it from $9.40 just on Jan 13.
On Jan 21, Chu Peng of OCBC Group Research raised her target price for the stock from $9.80 to $10.90, while keeping her “buy” call. “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.
She notes that this stock is trading at a forward 12-month P/E of 29.9 times, above its historical average of 20.5 times, but still at a discount to selected global aerospace and defence peers, which trade closer to an average of 47.6 times. “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.
Besides defence, the company is seeing other growth drivers, such as its integrated aerospace lifecycle fleet solutions, which 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. On the one hand, there will be an impairment of about $689 million in the satellite business. On the other hand, STE will book total gains of about $306 million from earlier divested units such as LeeBoy, SPTe, CityCab and Starco, leading to a 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.
On Jan 29, Shekhar Jaiswal of RHB Bank Singapore raised his target price from $9.40 to $10.70. He notes that ST Engineering’s share price is up 13% year to date, but “value” remains as this counter is still trading at a discount to global defence peers. “Our positive view is braced by record 2025 contract wins, improving balance sheet post divestments and upside from international defence amid supportive geopolitical backdrops and sustained defence and public security momentum,” he says.
