The company’s commercial aerospace business, as one of the largest maintenance, repair and overhaul service providers in the world, posted stronger ebit and revenue growth. However, investors are more enamoured of its defence and public security business, which is set for stronger, more visible growth ahead, as rearmament by countries big and small becomes a common priority.
In her March 3 note, Ada Lim of OCBC Group Research observes that in the first two months of 2026, the US invaded Venezuela, the US has postured around Greenland, and the US, together with Israel, has bombed Iran. Meanwhile, the Russia-Ukraine war, which is now entering its fifth year, has shut down the dainty ESG crowd who were shunning the defence industry.
“The current defence upcycle is being driven by a heightened emphasis on bolstering military readiness and capabilities. Even if such conflicts are resolved quickly, a more fragmented world order is likely to underpin structurally higher defence spending. This, in turn, is likely to support order book growth and revenue visibility for defence-related companies,” says Lim, adding that besides ST Engineering, another such stock under OCBC’s coverage, is the Nordic Group.
ST Engineering’s executives earlier stated this view at the results briefing on Feb 27. “There’s a structural change in how countries view defence spending. This upward trend will last some time,” says group president and CEO Vincent Chong.
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Mervyn Tan, the company’s president for its defence and public security business, says that even if fighting between Russia and Ukraine comes to a stop, the “perception of threat” remains. The Europeans, many of whom are Nato members, have committed to increasing their defence spending, as have other countries, including Canada and Japan.
In FY2025, the company won international defence contracts totalling around $600 million, double that of FY2024. This current FY2026, Tan expects to double his haul again.
Typically, when ST Engineering wins new defence contracts, whether local or international, its announcements tend to be sparse and provide scant details. This time around, ST Engineering timed its latest defence contract win announcement with the results briefing, clearly inviting questions for the presumably pleased executives. On Feb 27, the company won what Tan calls a “milestone” $470 million deal to provide MRO services for the Qatari army over a five-year period.
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When asked, Tan did not disclose the types of vehicles it will be servicing, other than that it will be for five different “platforms”. Since 2015, Qatar has deployed 62 Leopard 2A7 main battle tanks built by Germany; Singapore, meanwhile, has been operating another variant of the Leopard 2 for a decade prior.
The timing of ST Engineering’s latest contract win shows that defence is a serious business. Following the attacks by the US and Israel, Iran has launched a wave of retaliatory strikes on several other neighbouring countries, including Qatar, Kuwait, the United Arab Emirates and Saudi Arabia. According to the Qatari government, it managed to shoot down two Iranian SU-24 as well as several missiles and drones.
According to Tan, he is in “quite advanced stages” with several other prospects. He is aiming to win orders for its Bronco all-terrain vehicle and the Terrex infantry fighting vehicle. ST Engineering has teamed up with the likes of Italy’s Leonardo, which provides the turret that is mounted on the Terrex, to win new orders together. Besides those in the Middle East, potential customers with an “active interest” in its wares include Finland, Austria and Sweden. “You get a very strong sense that this commitment to rearm, to reconstitute defence capabilities, is structural in nature,” says Tan.
ST Engineering, while enjoying a similar run-up in the past couple of years as other defence contractors, generates a relatively small proportion of its revenue from outside Singapore. For context, it won total contracts worth $18.7 billion in FY2025, bringing its total order book to $33.2 billion. Of the $18.7 billion won, $9.1 billion came from its defence and public security segment, with key wins including the new-generation Terrex infantry fighting vehicles for Singapore, as well as various maintenance and cybersecurity-related work.
Following the results, analysts across the board, even as they keep their “buy” calls, have raised their respective target prices for this stock. Jason Sum of DBS Group Research notes that with overseas momentum accelerating and multiple sizeable contracts in advanced stages of negotiation, ST Engineering should see a stronger contribution from international revenue rather than merely order intake. “Rising defence budgets across Europe and the Middle East, including NATO members’ commitment to higher spending targets, provide a structural backdrop to pipeline expansion and reinforce visibility for sustained international growth,” says Sum, who now figures this stock is worth $11, up from $10.20.
Roy Chen of UOB Kay Hian suggests that investors “should stay invested” for the company’s strong earnings growth. “Sentiment towards ST Engineering is likely to stay buoyant with the ongoing war in the Middle East,” says Chen, who has raised his target price from $9.05 to $10.86.
Chu Peng of OCBC, the most bullish, says the re-rating story for ST Engineering remains intact. “Looking into 2026, management guided for continued momentum in core profit growth and margin expansion, supported by sustained order momentum, solid backlog conversion, and cost management,” says Chu, who has raised her fair value from $10.90 to $12.50.
