- International defence inflection point emerging alongside already strong aerospace earnings momentum. Commercial aerospace should continue to see strong earnings momentum, driven by extended asset utilisation and tight supply-demand conditions in MRO, while defence is beginning to scale as international orders come through. This is evidenced by the recent S$600m Missile Gun Boat sub-contract from Abu Dhabi Ship Building for the Kuwait Naval Force, which brings total international defence contracts secured to around S$1.07bn year-to-date, tracking well ahead of the full-year target of S$1.2bn.
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The key swing factor is execution on defence.
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- While visibility on timing remains limited, the strong start to the year with ~90% of the 2026 international defence contract target already secured supports our view that defence is entering a scaling phase. Potential Middle East de-escalation, initially seen as a drag on ST Engineering's share price, could in fact be supportive as it alleviates concerns over delays in defence procurement from Middle Eastern countries.
- Any further pipeline conversion would provide meaningful earnings upside given the attractive economics of export contracts.
Elevated jet fuel prices remain the main macro sensitivity.
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