Goldman Sachs initiates coverage on ST Engineering; stock ends 2.4% up

ST Engineering's stock surged 5% in early trading on Friday after Goldman Sachs initiated coverage with a "buy" rating and a 12-month target price of S$13.20. The shares rose from S$10.70 within minutes to S$10.56 by noon, before closing 2.4% higher at S$10.43. The stock had declined 8.6% over the previous month, ending at S$10.19 on September 17 after starting the month at S$11.15.

Goldman Sachs analysts see a 29.5% upside from the September 17 close, projecting a 20% compound annual growth rate (CAGR) in net profit from 2025 to 2029, reaching S$1.7 billion. This growth rate exceeds ST Engineering's own long-term guidance of 13% and the consensus forecast of 15% from Bloomberg analysts. Goldman Sachs identified three growth drivers: commercial aerospace capacity expansion, a surge in international defence, and operational cost efficiency.

In aerospace, the firm forecasts a 13% revenue CAGR and 18% earnings before interest and tax CAGR through 2029, as delays in global aircraft deliveries have created a backlog of over 5,000 planes and raised the average fleet age to 15 years. ST Engineering plans to double its CFM56 and CFM Leap engine maintenance, repair, and overhaul capacity in Singapore to over 300 shop visits annually by 2027.

In defence, domestic revenue is expected to grow 4.8% CAGR with Singapore's defense spending, while international defence revenue is projected to surge 62% CAGR from 2025 to 2029, potentially increasing the firm's international defence contribution from 10% to 30% of total defence revenue by 2029. The analysts also highlight ST Engineering's asset-light expansion model, which preserves capital and yields higher operating margins, and potential cost-saving initiatives.

However, Morningstar maintains a "hold" rating with an S$11.10 target price, citing lagging domestic defence orders and operational constraints, such as passenger-to-freighter conversions limited by a shortage of available aircraft.