With increasing volatility in the markets these days, brought about by geopolitical tensions, interest rate expectations and growth worries, it is not uncommon for investors to increasingly concentrate their portfolios in stable blue-chip companies.
Singapore Technologies Engineering Ltd (SGX: S63), or ST Engineering, has long been an industrial blue chip given its status as Singapore’s defence provider.
However, given increasing market volatility and with its share price up 84% over the past year, is the company’s valuation compelling at current levels?
Business Overview
ST Engineering, or STE, operates three business segments:
1) Commercial Aerospace (CA), where it provides maintenance, repair and overhaul activities for aircraft,
2) Defence & Public Security (DPS), where it provides for countries’ defence needs, and
3) Urban Solutions and Satcom (USS), where it provides satellite and smart city solutions.
With operations spanning the globe, long-term contracts with private-sector clients, and multi-year government-linked defence contracts, STE stands out with visibility on its revenue.
Recent Performance
STE turned in a stellar financial report for the full year of 2025 (FY2025).
The company grew overall revenue 9% to S$12.3 billion, with net profit surging 21% to S$851 million.
STE’s increasing profitability, which indicates possible operating leverage (its return on equity also rose from 26.3% in FY2024 to 28.7%), has likely led to the sharp 32% rally in its share price so far this year.
The order book remains robust at S$33.2 billion as of 31 December 2025, representing a 16% rise.
It’s hard to tell what the weighted average contract-length of STE’s order book is, but for perspective, it is nearly three times the company’s revenue in 2025.
STE’s total dividend for FY2025 is S$0.23 per share, giving the company a trailing yield of 2.1%, and continuing its multi-year track record of paying a consistent annual dividend.
The industrial blue chip continues to improve its balance sheet, with gross debt to EBITDA (earnings before interest, taxes, depreciation, and amortisation) at 2.7 at the end of 2025, compared to 3.6 at the end of 2024.
Why ST Engineering Is Often Seen as a Defensive Stock
ST Engineering’s record order book, underpinned by long-term contracts with governments and major customers, provides revenue and earnings visibility for the group, as mentioned earlier.
Defence contracts are non-discretionary in nature, with government spending being resilient even during downturns.
This means STE’s top line has some form of protection.
Adding to the stability and defensiveness of STE’s business is the fact that it is diversified across three business segments, as already mentioned.
Finally, the company’s consistent dividend payment over the years further strengthens its defensive profile.
Growth Drivers Going Forward
ST Engineering’s future looks bright, given the increasing focus on global defence spending (on the back of increased geopolitical conflicts).
The resilient recovery in the global aviation market also supports STE’s CA segment.
Finally, the increasing implementation of smart solutions in cities around the world underpins the company’s USS segment.
Key Risks Investors Should Watch
Having painted a rosy picture for ST Engineering, it’s time to consider the real risks that could derail this investment.
Project execution risk is always present. Taking too long to complete contracts or being unable to manage costs effectively (either because of inflation or competition) will hamper STE’s revenue and earnings.
Given the stock’s recent rally, STE’s current valuation is elevated. The company is trading at an estimated forward price-to-earnings (P/E) ratio of 33.9, compared to a five-year average of 19.8.
Simply put, the current valuation of ST Engineering means the market expects strong earnings growth, while possibly also ascribing a premium for its defensiveness.
Finally, the recent Middle East conflict has also led to a broad rally in defence names such as ST Engineering.
Get Smart: A Best-in-Class Blue Chip with Premium Valuation
In conclusion, ST Engineering’s diversified business model and long-term contracts underpin its defensive profile.
With STE’s recent robust business performance, accompanied by solid growth prospects, its fundamentals are strong.
However, given the rally in its share price, investors should be mindful that ST Engineering’s valuation is not cheap.
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Disclosure: Wilson.H does not own shares in any of the companies mentioned.
