To The Moon

Analysts are optimistic about ST Engineering and have raised the stock's target price, citing the company's positive outlook and strong growth prospects.

Previously, the company announced its five-year goals during an Investor Day on Tuesday (March 18). It aims to achieve S$17 billion in revenue over the next five years, with net profit growth exceeding revenue growth by up to five percentage points annually.

Year-to-date, ST Engineering has been one of the top-performing blue-chip stocks. Its share price has surged, with a closing price increase of up to 41% this year.

The stock price has also continuously set new yearly highs, such as breaking the S$5 mark on February 7 and surpassing the S$6 mark on March 4.

On Thursday at 11:24 AM, ST Engineering's share price hit a historic intraday high of S$6.93, up S$0.36 or 5.5% from Wednesday's close of S$6.57, with a trading volume of 8.9 million shares.

By 2:08 PM, the share price retreated to S$6.84, still up S$0.27 or 4.1%, with a trading volume of 12.6 million shares.

According to Yahoo Finance data, this gives the stock a price-to-earnings (P/E) ratio of around 31.1, higher than other blue-chip stocks like UOB, DBS, OCBC, and SIA, which have P/E ratios ranging from 7.8 to 11.5.

RHB raised the stock's target price from S$5.90 to S$7.80 on Thursday, maintaining a "Buy" rating. CGS International also increased the target price from S$5.60 to S$7.40 on Tuesday, reiterating an "Overweight" rating.

RHB analyst Shekhar Jaiswal stated that ST Engineering's guidance suggests "steady long-term growth," although he maintained his near-term earnings expectations for the company.

He said this justifies the target price increase. "We are now valuing the stock based on 2026 forecasts to better reflect its long-term growth potential."

He added that the new target price includes an unchanged environmental, social, and governance (ESG) premium of 4% over the fair value of S$7.50.

Similarly, CGS International analysts Kenneth Tan and Lim Siew Khee noted that ST Engineering's "robust" mid-term revenue and profit guidance provide "confidence" in its ability to sustain double-digit earnings per share (EPS) growth in FY2025 and FY2026. They added that the new target price is linked to FY2026 forecasts.

**Defense Sector Could Drive Growth**

Both RHB and CGS International predict that ST Engineering will benefit from growth in its defense sector.

By 2029, the company expects revenue from its defense and public security division to exceed S$7.5 billion, as it sees a "potential" international defense market worth US$11 billion. The company believes that escalating geopolitical tensions, supported by developments in Europe and the Middle East, as well as increased defense spending by governments, could benefit this segment.

Tan and Lim said, "Supported by a multi-year defense upcycle, we see a stronger and clearer earnings growth trajectory."

They noted that ST Engineering's management plans to address the vast international defense market by strengthening partnerships with external collaborators and enhancing localization.

"We believe that successful localization arrangements could improve margins, given the higher engineering value and lower transportation costs," they added, highlighting strong order pipelines in both ammunition and vehicles.

Jaiswal agreed that spending in the company's defense sector could support growth.

"While our 2029 forecasts are below ST Engineering's targets, we believe strong tailwinds in its commercial aerospace, defense, and public security divisions will support double-digit profit growth (forecast) from 2024 to 2027," he said.

He added that defense revenue could exceed S$7.5 billion, reflecting a 9% compound annual growth rate (CAGR), "driven by ST Engineering strengthening its position in providing solutions for Singapore's defense and expanding its international defense business."

He also noted that revenue from the commercial aerospace division could reach S$6 billion, with a 7% CAGR, driven by the expansion of airframe and engine maintenance, repair, and overhaul (MRO) services, as well as investments in next-generation composite aerospace structures.

On Thursday, the stock closed up 5.2% at S$6.91, a gain of S$0.34.