Singapore Technologies Engineering: 2025 Investor Day Update: Strong execution sets the stage for a new growth phase
- Excellent performance on 2021 Investor Day scorecard, with several 2026 objectives met two to three years early, reflecting strong execution.
- New Investor Day targets are more ambitious, with revenue expected to grow at a high single digit five-year CAGR, with net profit expanding at a low to mid-teens CAGR, significantly outpacing the 7.7 percent CAGR achieved between FY20-24.
- New progressive dividend policy, with 18.0Scts dividend-per-share planned in FY25, while STE intends to increase dividends in subsequent years by one-third of incremental net profit.
- Shares are trading at close to 2SD above its historical trading range, but the new growth paradigm and potential for positive surprises suggest there could be more upside.
Our recommendation and target price are currently under review; we currently have a BUY rating and TP of SGD6.0
STE handily outperformed its 2021 Investor Day scorecard, and its new targets signal a fresh era of growth for the group. STE has significantly exceeded its 2021 Investor Day targets, meeting several of its 2026 objectives two to three years ahead of schedule (as shown in the table below), underscoring the strength of its execution. We were pleasantly surprised by STE’s 2025 Investor Day targets, which call for a high single-digit CAGR in revenue and low- to mid-teens growth in net profit, substantially above the 7.7% net profit CAGR recorded between FY20–24. Notably, the defence and public security segment, which enjoys the highest margins, is expected to maintain its momentum at a high single-digit CAGR over the next five years. This growth is underpinned by rising defence budgets both domestically and abroad, with STE’s international defence market opportunity now expanding to over USD11.0bn (up from USD5.0bn previously). We were also encouraged by STE’s emphasis on cost control. Building on the SGD0.9bn in savings achieved between FY20–24, the group aims to capture an additional SGD1.0bn in efficiencies through procurement initiatives, automation, AI-driven manufacturing (robotics, AI-based quality control, predictive maintenance), AI-assisted supply chain optimisation (predictive analytics for inventory and logistics), and an upgraded ERP system. The only less-positive update is the group’s new dividend policy: STE has planned for a 18.0Scts dividend for FY25 and will increase future dividends by one-third of the incremental net profit in subsequent years (SGD33mn in dividends for every SGD100mn increase in net profit). While special dividends remain a possibility if the group’s capital position allows, we think investors would have welcomed a stronger focus on returning capital, particularly given the company’s guidance for solid free cash flow generation over the next five years (annual capex of roughly SGD500mn and multiple initiatives to optimise working capital).
Share price has performed exceptionally well in 2025-YTD, but there may still be further upside. After having surged by 37.2% in 2025-YTD and 62.8% over the past year, the stock is now trading close to two SDs above its historical forward P/E average. However, we view this premium as justified, given STE’s transition into an exciting phase of growth. Management’s solid track record lends credibility to its plan to surpass >SGD1.2bn in net profits by FY29, a notable jump from the relatively tight SGD500–600mn range recorded between FY07–FY23. As a result, historical trading multiples may no longer be the best yardstick for valuation. We also see room for upside in STE’s international defence business, particularly in Europe, where most countries have shown a renewed commitment to increasing defence spending. Furthermore, after sufficient deleveraging, we believe STE’s proven track record, as demonstrated by past acquisitions, and competitive cost of capital should position it well for further earnings-accretive acquisitions that bolster its existing capabilities and market reach. Amid macroeconomic uncertainty, STE's diversified operations across both geographies and business segments, combined with its strong orderbook that supports earnings visibility, make it an appealing choice for investors looking for stability and growth.
| 2021 Investor Day Scorecard | ||||
| 2026 Target | Achieved as of 2024 | CAGR (FY20-24) | Comments | |
| Group revenue to reach >SGD11.0bn | SGD11.3bn | 12.0% (7.5% between FY19-24) | Achieved two years ahead of target. | |
| Net profit to grow in tandem with revenue | SGD702mn | 7.7% | Not yet achieved, but the group remains on track as net profit is expected to outpace revenue growth over the next two years. | |
| Commercial aerospace segment revenue to exceed SGD3.5bn | SGD4.4bn | 17.1% | Achieved three years ahead of target, an impressive feat given prolonged supply chain and labour challenges. | |
| Smart City revenue to more than double to SGD3.5bn | SGD2.7bn | 15% | Management stated they remain on track, suggesting Smart City revenue could grow at a 14% CAGR over the next two years. | |
| Digital Business revenue to exceed SGD500mn | SGD645mn | >40% | Achieved two years ahead of target, partly boosted by inorganic growth from the acquisition of D’Crypt. | |
| P2F conversion revenue to reach SGD700mn | SGD706mn | NA | Achieved two years ahead of target; also attained a mid-single-digit EBIT margin in FY24. | |
| 2025 Investor Day Key Targets | ||||
| 2029 Target | Achieved as of 2024 | CAGR (FY24-29) | Comments | |
| Group revenue to reach SGD17.0bn | SGD11.3bn | 8.6% |
| |
| Net profit CAGR to outpace revenue CAGR by up to 5ppts, implying net profits of SGD1.2bn to SGD1.3bn | SGD702mn | 11.1% (mid-point) to 13.6% (high-end of range) |
| |
| Defence & Public Security segment revenue to exceed SGD7.5bn | SGD4.9bn | 8.7% |
| |
| Commercial aerospace segment revenue to reach SGD6.0bn | SGD4.4bn | 6.5% |
| |
| Smart City revenue to climb to SGD4.5bn by 2029 | SGD2.7bn | 10.8% |
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| More than double Digital Business revenue to >SGD1.3bn | SGD645mn | 16.7% |
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Source: DBS, Company
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