Goldman Sachs initiates coverage on ST Engineering; stock up 5%
Shares of the tech, defence and engineering group are down 8.6% in the past month
[SINGAPORE] Shares of ST Engineering rose 5 per cent in early trade on Friday (Sep 18), after Goldman Sachs initiated coverage on the group with a “buy” rating and a 12-month target price of S$13.20.
The stock touched S$10.70 within two minutes of market open after rising S$0.51 or 5 per cent, but pared some gains to trade S$0.37 or 3.6 per cent higher at S$10.56 by noon.
The bounce follows a month-long decline where the counter retreated 8.6 per cent from S$11.15 on Aug 18 to S$10.19 on Sep 17.
Goldman Sachs analysts’ target price implies a 29.5 per cent upside from the Sep 17 close. They forecast a 20 per cent compound annual growth rate (CAGR) in net profit from 2025 to 2029, reaching S$1.7 billion. This significantly outpaced ST Engineering’s own long-term guidance of 13 per cent and the Bloomberg consensus forecast of 15 per cent.
Goldman Sachs’ bullish stance contrasted with Morningstar’s Thursday report, which maintained a “hold” rating with an S$11.10 target price, citing lagging defence contract wins despite a strong international outlook.
The consensus target price among 12 analysts tracked by Bloomberg stands at S$11.77.
Goldman Sachs highlighted three core growth drivers for ST Engineering: commercial aerospace capacity expansion, an international defence surge and operational cost efficiency.
Commercial and defence boost
In commercial aerospace, Goldman Sachs forecast a 13 per cent revenue CAGR and an 18 per cent earnings before interest and tax CAGR until end-2029.
Global aircraft delivery delays have created a shortfall of over 5,000 planes, lifting the average in-service fleet age to a record of about 15 years and driving heavy maintenance visits.
To capture this demand, ST Engineering is doubling its CFM56 and CFM Leap aircraft engine maintenance, repair and overhaul (MRO) capacity in Singapore to over 300 shop visits annually by 2027.
As Asia’s only “premier MRO provider” outside China for Leap engines, the group can secure prioritised access to critical parts amid global supply bottlenecks.
In defence, while domestic revenue is set to grow steadily at a 4.8 per cent CAGR alongside Singapore’s defence expenditure (about 3 per cent of gross domestic product), the analysts projected international defence revenue to surge at a 62 per cent CAGR from 2025 to 2029.
This could expand ST Engineering’s international defence contribution from 10 per cent now to 30 per cent of total defence revenue in 2029, Goldman Sachs said.
Fuelling overseas demand are Europe’s defence capacity deficit and the Middle East conflict. With order book coverage at 2.3 years – below global peers’ 3.3 years and European peers’ 4.4 years – ST Engineering has available capacity to capture spillover orders, noted Goldman Sachs.
Its asset-light expansion model, utilising technology transfer with local partners, preserves capital and yields higher operating margins, it added.
The analysts said group operating margins could also expand from 9.6 per cent in 2025 to 11.5 per cent by 2029, bolstered by more than S$1 billion in cumulative cost-saving targets through 2029 and satellite communication (satcom) cost reductions.
Morningstar cautious
Taking a more conservative stance, Morningstar director of equity research in Asia, Lorraine Tan, said the stock was fairly valued at 32 times 2026 estimated earnings.
She warned that while international defence contract wins have hit targets, domestic defence orders appear to be lagging expectations and are expected to normalise to 5 to 6 per cent annual growth following a 72 per cent surge in 2025.
Tan also pointed to operational constraints, noting that passenger-to-freighter conversions could be limited by a tight supply of available feedstock aircraft, potentially dampening hangar utilisation.
Furthermore, ST Engineering’s satcom subsidiary, iDirect, lacks an economic moat and continues to suffer market share erosion from low-Earth-orbit satellite competitors such as Starlink.
Morningstar added that persistent supply chain cost inflation could slow expected cost-cutting initiatives, while any global economic slowdown could delay smart city contract roll-outs in its urban solutions division.
