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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Above is an excerpt from a report by DBS Group Research. Clients of DBS may access the full PDF report @ https://www.dbs.com/insightsdirect/.
