This year, Singapore Technologies Engineering (SGX: S63), or STE, is the best-performing blue-chip stock.
The engineering and technology firm saw its share price soar 65% year-to-date to hit an all-time high of S$7.67.
However, STE experienced a sudden, 7% share price plunge on 13 May, bringing it down to S$7.09.
Could this be a buying opportunity, or should investors stay cautious?
An encouraging business update
STE recently released an encouraging business update for the first quarter of 2025 (1Q 2025).
The group saw its revenue rise 8% year on year to S$2.9 billion, with all three of its business segments registering year-on-year revenue growth.
Its Defence & Public Security (DPS) segment registered the strongest growth with revenue climbing 18% year on year to S$1.32 billion.
Next was Urban Solutions & Satcom (USS), which saw a 4% year-on-year rise in revenue to S$446 million.
Commercial Aerospace (CA) saw its revenue inch up 0.1% year on year to S$1.15 billion.
STE snagged a total of S$4.4 billion in new contract wins for 1Q 2025, with the bulk (S$2.7 billion) belonging to the Defence & Public Security segment.
Its order book stood at S$29.8 billion as of 31 March 2025, with S$7.3 billion of orders expected to be recognised this year.
The engineering firm declared an interim dividend of S$0.04, unchanged from a year ago.
Investor Day targets
Management held an Investor Day back in March to update on the progress of its previous Investor Day, that had targets set for 2026.
The group achieved three out of six targets and is on track to achieve the remaining three.
STE set an ambitious target to grow group revenue by more than two and a half times the global GDP growth rate to hit S$17 billion by 2029.
The group sees a favourable outlook for the CA division and identified a wide spectrum of opportunities for its DPS division.
CA is expected to grow its revenue by 7% per annum to hit S$6 billion by 2029, while DPS aims to grow its revenue to more than S$7.5 billion by the same year.
As a reference, CA and DPS recorded full-year revenue of S$4.4 billion and S$4.9 billion for 2024, respectively.
As for USS, STE is trying to double its digital business to S$1.3 billion and for smart city revenue to grow by 3.5 times the global GDP growth rate to S$4.5 billion by 2029.
A progressive dividend policy
Meanwhile, management also announced a progressive dividend policy for the group after declaring a total of S$0.17 in dividends for 2024.
Investors should note that last year’s dividend was one cent higher than the prior year (i.e. 2023).
Management has committed to paying a total of S$0.18 per share in dividends for 2025 based on the current strong earnings and encouraging five-year outlook.
Thereafter, from 2026, should STE achieve better profitability, it will pay out one-third of its year-on-year increase in net profit as an incremental dividend.
Encouraging business developments
Just this month, STE also announced encouraging business developments.
The engineering firm was awarded a contract by the Ministry of Defence (MINDEF) to deliver a suite of Mine Countermeasure Unmanned Systems for the Republic of Singapore Navy.
STE will also provide a high-fidelity simulation system for users to hone their operational skills.
A week later, the Institute of Technical Education (ITE) and STE launched a training facility for aircraft maintenance, repair, and overhaul (MRO) that can train over 380 students and trainees annually.
A rich valuation
Source: FinChat
Although STE reported good numbers for 1Q 2025 and set ambitious growth targets for 2029, the group is trading at lofty valuations.
The engineering group’s current price-to-earnings (P/E) ratio is at 32.8 times.
This is significantly higher than its average P/E ratio of close to 22 times over the past 10 years.
One reason for the lofty valuation could be because of optimism surrounding STE’s growth targets and its recently announced progressive dividend policy.
Get Smart: Promising but expensive
STE has delivered on the targets it set back in 2021’s Investor Day.
Management has also grown the firm’s order book and come up with ambitious growth targets for 2029.
However, with President Trump’s latest raft of reciprocal tariffs, STE may be indirectly impacted by the second and higher-order effects.
The first-order impact may result in the potential deferral of S$40 million of revenue per month for the engineering company.
There may also be potential recession and inflationary risks that investors need to consider.
The bottom line is that STE’s growth trajectory sounds promising, but investors need to balance this with the potential future headwinds and the group’s expensive valuation.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
