To The Moon

The first quarter of FY2025 saw ST Engineering secure a remarkable S$4.4 billion in new contracts, underscoring its continued operational momentum. The lion's share, S$2.7 billion, stemmed from the Defence & Public Security (DPS) segment, which surged 18% year-on-year to S$1.32 billion. This growth was broad-based, spanning across various sub-segments and including significant overseas orders for ammunition, high-performance GPU data center infrastructure, AI-enabled command & control systems, and public camera systems for the Singapore government.

While the Commercial Aerospace (CA) segment saw a more modest 0.1% increase in revenue to S$1.15 billion, strong engine MRO (Maintenance, Repair, and Operations) growth was largely balanced out by a high base in the previous year's passenger-to-freighter (PTF) revenue. Urban Solutions & Satcom (USS) also contributed positively, with a 4% year-on-year rise to S$446 million, driven by urban solutions, though partially offset by the satcom business.

This strong contract momentum has bolstered ST Engineering's order book to a substantial S$29.8 billion as of March 31,2025, with S$7.3 billion of these orders slated for recognition within the remainder of 2025. The group also announced an interim dividend of S$0.04 per share for the first quarter, maintaining parity with the previous year. Furthermore, ST Engineering has deemed the financial impact of recent US tariffs as "immaterial" to its overall business, with mitigation strategies in place to address potential revenue deferrals in commercial aerospace.

Vision 2029: A Leap Towards S$17 Billion Revenue

In a significant move signalling its confidence and strategic direction, ST Engineering hosted an Investor Day in March,unveiling ambitious new targets for 2029. The group aims to achieve a formidable S$17 billion in group revenue by 2029, a growth rate projected to be more than two and a half times the global GDP growth rate. This target builds upon a successful track record, with the company having already achieved three out of six targets set in its previous 2021 Investor Day and being on track for the remaining three.

Segment-specific projections highlight the drivers of this growth:

* Commercial Aerospace (CA): Expected to grow its revenue by a compound annual growth rate (CAGR) of 7% to reach S$6 billion by 2029, capitalizing on robust long-term tailwinds in air traffic and MRO demand.

* Defence & Public Security (DPS): Aims for revenue exceeding S$7.5 billion by 2029, buoyed by ongoing geopolitical tensions and increased modernization spending globally.

* Urban Solutions & Satcom (USS): Plans to double its digital business to S$1.3 billion and target smart city revenue growth at 3.5 times the global GDP growth rate, reaching S$4.5 billion by 2029.

Progressive Dividends to Reward Shareholders

Accompanying these ambitious growth targets is a new, progressive dividend policy designed to offer greater predictability and incrementally reward shareholders. For 2024, a total dividend of S$0.17 was declared. Looking ahead,ST Engineering has committed to paying a total of S$0.18 per share in dividends for 2025, reflecting the current strong earnings and optimistic five-year outlook.

Crucially, from 2026 onwards, the company plans to pay out approximately one-third of its year-on-year increase in net profit as incremental dividends, assuming a progressively higher full-year net profit. This policy underscores management's commitment to balancing reinvestment for growth with consistent shareholder returns, with dividends continuing to be paid out on a quarterly basis.

Valuation and Outlook: Balancing Ambition with Prudence

While ST Engineering's strong first-quarter results, robust order book, and clear growth trajectory have fueled optimism,the market has responded with a higher valuation. The stock is reportedly trading at a lofty price-to-earnings (P/E) ratio of 32.8 times, significantly above its 10-year average of around 22 times. This premium reflects investor confidence in the company's ability to execute its ambitious growth plans and the attractive progressive dividend policy.

However, the company remains vigilant regarding potential macro-economic headwinds, including recessionary pressures and inflation risks. Nevertheless, ST Engineering's diversified business portfolio is expected to provide resilience against such challenges.

In essence, ST Engineering is positioning itself for a period of significant expansion, leveraging its core strengths in defense and aerospace while aggressively pursuing opportunities in smart cities and digital solutions. The clear articulation of its long-term vision, coupled with a shareholder-friendly dividend policy, aims to solidify its standing as a leading global technology and engineering powerhouse.

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