Tan replaced the outgoing Ravinder Singh on June 1, who retired after 11 years of service. In an announcement, ST Engineering said that Singh’s leadership had been “instrumental” in shaping the DPS segment since its formation during the group’s 2021 reorganisation.
Between 2021 and 2024, revenue for this segment grew over 20%, while more than $2.2 billion in new orders have been secured within the international defence market since 2021.
Although new to ST Engineering, Tan is no greenhorn to international defence. Besides serving as chief of the air force, he has held various other senior appointments such as chief executive of Singapore’s Defence Science and Technology Agency (DSTA) and director of military intelligence, among other titles.
His most recent appointment was managing director of investment at venture capital firm Vertex Holdings, which looks at start-ups with innovative technologies in deep-tech domains such as AI, quantum technology and new materials.
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Tan, who quips that it “was not too long ago” when he was “wearing the shoes of Singapore defence”, explains that although it is not preferable to see ST Engineering’s products “used in anger”, the overseas market continues to present opportunities for the DPS business.
In the 1HFY2025 ended June, revenue from the segment grew12% y-o-y to some $2.65 billion, taking up the lion’s share of overall group revenue of $5.92 billion, which was up 7.2% y-o-y.
The business has also continued to boast new order wins of $1.5 billion in the 2QFY2025. This includes contracts by Singapore’s Ministry of Defence to deliver a suite of mine countermeasure unmanned systems for the detection and elimination of underwater mines for the Singapore Navy. Solutions include a fleet of unmanned surface vessels and autonomous underwater vehicles, a command and control centre as well as a high-fidelity simulation system for training purposes.
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The land systems business also secured more orders for 40 millimetre and 155 millimetre ammunition in the period, as well as maintenance, repair, and overhaul (MRO) services for weapons. The marine business meanwhile won various ship repair and maintenance contracts for commercial and naval ships, while the defence aerospace business secured contracts for the provision of MRO services for international customers, which includes a North African air force.
Moving forward, Tan says the DPS business will source for opportunities in the Middle East. He adds: “I would really want to name these countries, but we have non-disclosure agreements with them. But I want to add that we will broaden these opportunities beyond just aircraft — we are also looking at MRO opportunities in shipbuilding, ship maintenance, as well as in vehicle maintenance.”
In the half year, revenue stemming from ST Engineering’s commercial aerospace (CA) segment also grew, by 5% y-o-y to $2.35 billion thanks to stronger engineer MRO and nacelles services.
Jeffery Lam, president of CA, says that the segment has largely managed to escape tariff impacts, as most of the group’s US-based revenues source their material from within the US.
Lam adds: “I think conceptually, when we do get tariffs, our objective is to work with customers so that they carry the tariffs — there’s no way that we are going to pay for the tariffs before the customer. So then the question is, are the customers willing to pay? And then, with regards to competition, if we are hit by tariffs, then it is likely that our competitors have been hit similarly. So it doesn’t make us less competitive, we are still on a level playing field.”
Notably, the segment’s aviation under asset management — or put more simply, securitisation business, saw a marginal 2% y-o-y increase to US$2.35 billion ($3.02 billion) in assets under management (AUM).
ST Engineering had previously indicated a goal of US$3.5 billion by FY2029 as part of its five-year plan.
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Things are “on track”, with the group actively working with investment partners in a “very active” securitisation market,” says Lam.
“Over the years, we have done a number of sales and securitisations, and we did share earlier this year that we would go out with an aviation fund structure, which is currently in progress. We expect that to enable us to access the investment market in a more institutional way and we expect that that step to be progressing well to the year-end,” he adds.
The weakest performing segment for ST Engineering in the 1HFY2025 was undoubtedly the urban solutions and satcom (USS) business, with its flat revenue y-o-y of $921 million. When broken down, although urban solutions posted a growth of 3% y-o-y to $829 million, satcom continued to be a drag with its 12% y-o-y decline to $117 million.
The satcom business started off being acquired as the Belgian-based satellite communication company, Newtec, in 2019 for about EUR250 million. Tan Lee Chew, president of smart city and solutions, says that the segment has been hindered by global uncertainties. “Potential challenges for us are, the delay of some customer decisions and, not to forget, a portion of the business is also in defence. So with everything that is happening, it might also change priorities and the focus on when customers would buy and how they would purchase these platforms,” says Chew.
As a whole, the group posted an improved revenue of 7.2% higher y-o-y to $5.92 billion in the 1HFY2025. Earnings came in at $402.8 million in the 1HFY2025, a 19.7% y-o-y growth. This was due to better margins and continued cost savings, which group CEO Vincent Chong says are actively being done to “offset inflation”.
He explains: “It’s more than $100 million of cost savings in the 1HFY2025, both from procurement as well as continuous improvement. Remember, in our five-year plan, we said that we expected to save a billion dollars over the next five years, so on average, that’s about $200 million a year. So we are well on track, and I think that there is really more potential for even more savings.”
Chong says that ST Engineering’s five-year goal of $17 billion in revenue by FY2029 excluding divestments and M&As remains unchanged and that the key for the group is to “keep scaling up”.
“It’s not always about growth, but how we streamline our operations to capture cost savings so that in bad times, in lean times, we will be much more resilient,” he adds.
With this set of results, the group will pay an interim dividend of four cents per share for the 2QFY2025. The CEO concludes: “We were really quite resilient in our underlying results. So those will continue, but our strategy remains unchanged and you will see, I think with our continued growth over the long term, we want to be a yield-cum-growth stock.”
What the analysts say
Analyst Jason Sum of DBS Group Research notes that ST Engineering’s strength lies in offering integrated offerings that “set it apart” from more “narrowly-focused” competitors, this coming alongside its dominant positions in defence, MROs and as a rising provider of smart city platforms.
He maintains his “hold” call with an improved target price of $8.20 from $7.70 in his Aug 15 report, after rolling forward his P/E valuation peg, while maintaining a neutral stance as the group’s strong fundamentals are already priced in.
“We expect the group’s core net earnings to grow at an impressive 15% to 20% compound annual growth rate between FY2024 and FY2026, driven by capacity expansion, faster project delivery across all business segments, strengthening operating margins and lower interest costs from deleveraging,” writes Sum.
Despite this, he adds that while the group’s “growth narrative remains compelling”, he sees limited upside from current levels due to the stock’s already rich valuations.
This is a common take among analysts.
Lim Siew Khee and Meghana Kande of CGS International have downgraded their call on the stock to “hold” from “add” previously after believing that its price, now trading three standard deviations higher than its historical average, factors in a 13% FY2026 earnings per share growth.
Raising their target price to $8.70 from $8.40 previously, Lim and Kande write: “Borrowings fell to $5.5 billion in 1HFY2025 and it expects around $450 million of divestment proceeds by 4QFY2025. ST Engineering also expects borrowing cost for FY2025F to be around the mid 3%.”
Analyst Krishna Guha of Maybank Securities echoes the view, downgrading his call on the stock to “hold” from “buy” given that the group’s valuation, at 31 times FY2025 P/E versus its historical mean, is now stretched.
He writes: “While ST Engineering has visible earnings growth and good execution, stretched valuation and looming tariff-related uncertainty makes its risk-reward ratio unfavourable, in our view.” Despite the downgrade, a lower weighted average cost of capital has increased Guha’s target price to $8.40 from $8.30 previously.
Year-to-date, shares in ST Engineering are trading 69.3% up at $7.87 on Aug 20.
