Highlights

• STE’s 1H26 results came in in line with our expectations, with net profit of S$512m (+27.1% yoy) forming 48.6% of our full-year forecast. 
   
• Orderbook hit a new record-high level of S$35.7b by end-1H26. The slower 2Q26 order win was only a timing issue, as demand remained strong. STE
  guides for 2026 total contract wins to be at least comparable to 2025 levels, implying strong order wins of S$11b or more in 2H26.   
   
• Maintain BUY; target price remains at S$11.75, based on 27.0x 2028F PE.
   

Analysis

• 1H26 results in line. Singapore Technologies Engineering (STE) reported a 1H26 net profit of S$512m (+27.1% yoy), forming 48.6% of our full-year forecast. Excluding one-offs, core net profit rose 24.0% yoy to S$499m. EBIT grew 24.6% yoy to S$701m, forming 49.6% of our full-year forecast. 
   

• Segmental performance: CA beat, USS miss, DPS in line.  
  
  - Commercial aerospace (CA): 1H26 CA EBIT of S$259m (+38.6% yoy) beat our expectation, forming 55.2% of our full-year forecast. The beat was 
  mainly from higher-than-expected EBIT margin of 9.6% in 1H26 (+1.7ppt yoy), which was driven by a more favourable product mix and productivity
  savings. Revenue was largely in line, rising 14.8% yoy, driven by stronger engine MRO, nacelles and spares sales. 
  
  - Urban solutions and satcom (USS): 1H26 USS EBIT of S$46m (+300% yoy) came in behind our projection, forming 32.4% of our full-year forecast. 
  2H26 is expected to be stronger for USS, driven by better performances from both the urban solutions (URS) and satcom businesses. Management
  targets the satcom business to turn EBIT-positive in 4Q26 and 2027, driven by both: a) cost initiatives completed in 1H26, and b) increasing demand for
  its new I-Direct Intuition platform. 
  
  - Defence & public security (DPS): 1H26 DPS EBIT of S$396m (+8.7% yoy) was in line with our expectation, at 49.3% of our full-year forecast. 
  Revenue rose 6.6% yoy, driven by growth across all sub-segments. Excluding the impacts from the disposal of Leeboy, revenue would have
  grown 14% yoy. DPS EBIT margin came in slightly above our projection, at 14.0% (+0.3ppt yoy) in 1H26. 
   
• Declared 2Q26 interim dividend of 5 S cents. This is in line with our expectation. Another 5 S cents interim dividend is planned for 3Q26. 
   
• Record-high orderbook backlog. Orderbook backlog stood at S$35.7b as of end-1H26 (end-25: S$33.2b, end-1Q26: S$34.5b), providing good
  medium-term revenue visibility. STE secured S$2.9b worth of contract wins in 2Q26, slower than the quarterly contract wins of over S$4b in the
  preceding six quarters. We understand that this moderation in contract wins in 2Q26 was only due to the timing of contract awards, as the demand and
  fundamentals of all three segments have remained strong.  
   
• Orderbook to revenue conversion guidance implies yoy faster revenue growth for 2H26. STE has guided to convert S$5.7b orderbook into revenue 
  in 2H26, representing a 14% yoy increase from the S$5.0b guidance that was given a year ago for 2H25. The implied 2H26 revenue growth is slightly
  faster than the of 11.1% yoy revenue growth achieved in 1H26.  
   
• Outlook remains upbeat... Management believes that STE is well on track to achieve its 2029 growth targets, and noted that the CA segment and digital
  businesses are likely to hit their respective revenue targets one year ahead of schedule. For 2H26, management expects the strong revenue growth
  momentum of DPS and CA to sustain and guides for USS to record a stronger performance hoh, driven by both the URS and satcom businesses. 
   
•  …with stronger contract win momentum expected for 2H26. Backed by the secular demand growth across STE’s all three business segments,
  management remains bullish about STE’s contract win momentum moving forward. Management guided that STE’s 2026 total contract wins should be
  at least as robust as the 2025 contract win levels (S$18.7b), implying contract wins of S$11b or more for 2H26, or an average quarterly win of over S$5.5b;
  this is even stronger than the previous six peak quarters through 4Q24-1Q26, when quarterly contract wins ranged at S$4.2b-4.9b.