First Read: ST Engineering "Q126: Bidding for US$11bn of int'l defence..."

Research evidence excerpt

First Read: ST Engineering "Q126: Bidding for US$11bn of int'l defence..."

not be impacted

12/27E 0.41 0.39

by the ongoing Middle East conflict. Aftermarket sales growth tends to lag airline 12/28E 0.48 0.44

EBIT margins by c.12 months, and a prolonged disruption of the jet fuel supply chain

could impact not 2026 but 2027 growth. Rachael Tan

Analyst

Actively bidding for US$11bn of international defence contracts in next 2 years rachael.tan@ubs.com

+65 6495 7951

STE secured S$1.1bn (US$900m) in international defence contracts for YTD'26, and has

highlighted US$11bn worth of major contracts of which it is in "active pursuit"(see Melissa Leong

AnalystFigure 1Internationaldefenceoportunitiesinthenext18-24months). Although we have focussed on the Middle East as it is a breakthrough market

melissa.leong@ubs.com

for STE, the company's target customer base is global, including, specifically, Thailand +65-6495 6773

for vessels, and Italy, Finland, Austria, and Canada for armoured vehicles. Our view: We

expect DPS to be a key revenue and earnings driver amid global macroeconomic Ian Douglas-Pennant

uncertainty. The addressable market has grown significantly in the last 1.5 years, and

ian.douglas-pennant@ubs.com

new contract wins could cushion some of the impact to the other businesses if the +44-20-7568 0936

Middle East conflict is prolonged.

Valuation: Buy, PT S$12.60

We have a Buy rating on STE, with a S$12.60 price target based on a blend of DCF and

P/E. STE is currently our top pick among ASEAN industrials.

Highlights (S$m) 12/23 12/24 12/25 12/26E 12/27E 12/28E 12/29E 12/30E

Revenues 10,101 11,276 12,346 14,012 16,080 18,309 20,700 23,316

EBIT (UBS) 840 1,006 843 1,395 1,672 1,914 2,193 2,471

Net earnings (UBS) - 702 463 1,046 1,290 1,495 1,733 1,972