• Commercial aerospace (CA):  Core EBIT beat our projection on higher-than-expected core EBIT margin of 9.3% in 2H25 (+0.8 ppt y-o-y).
• Defence & public security (DPS):  Core EBIT was in line at 100.8% of our projection. Revenue (+8.1% y-o-y) came in at 100% of our projection. 2H25 core EBIT margin improved 1.2ppt y-o-y to 13.2%.
• Urban solutions and Satcom (USS):  Core EBIT missed our projection by 16.2%. Revenue (+13.7% y-o-y) beat our projection by 3.1%, but core EBIT margins was weaker than expected at 1.8% in 2H25 (-1.2ppt y-o-y).

Record-high level of orderbook backlog.

• STE orderbook backlog stood at S$33.2b as of end-25 (end-24: S$28.5b), driven by strong contract win momentum throughout the year.
• Note that this record-high level of orderbook has yet to include a sizeable US$1.73b (S$2.25b) New Jersey tolling system back-office project due to a competitor&rsquo s court appeal, even though STE  is already receiving revenue from the project.

Orderbook-to-revenue conversion guidance increased by 12.5% y-o-y for 2026.

• STEhas guided to convert S$9.9b orderbook into revenue in 2026, a 12.5% y-o-y increase over the S$8.8b guidance given a year ago for 2025.

Upbeat outlook for all three business segments.

Commercial aerospace (CA):

• Management guides for medium-term steady revenue growth at a rate that is double the industry&rsquo s average growth rate of over 3% this is expected to be supported by its strong orderbook and ongoing capacity expansion.
• Margins should continue to improve, driven by favourable operating leverage.

Defence & public security (DPS):

• Management sees very strong international defence contract win outlook, noting that there are many contract negotiations in the advanced stages.
• Management targets for international defence wins to double y-o-y in 2026 to S$1.2b, starting with the newly announced Qatar defence MRO contract (S$470m worth). This Qatar defence MRO contract represents a breakthrough and may open more opportunities in the Middle East. Current level of operating margins is likely sustainable moving forward.

Urban solutions and Satcom (USS):

• Project deliveries for urban solutions are guided to accelerate through to 2028 and beyond. We see the new cost-saving initiatives announced for Satcom a key positive.
• Expected to land S$63m annualised cost savings by 2H26, it should put the satcom business on a right path to turnaround, while  ST Engineering  continues to evaluate strategic options (likely a disposal) for Satcom.

Valuation/Recommendation

• Raise 2026-27 earnings forecasts for STE  by 6-8% to S$1.04b/S$1.16b, as we have slightly raised our revenue and margin projections.
• Maintain BUY, with STE target price  raised to S$10.86, based on 29.1x 2027F P/E (+3.0 standard deviation above mean). The +3 standard deviation P/E peg reflects STE  being a beneficiary of heightened geopolitical uncertainties (including the on-going war in the Middle East).
• STE share price currently trades at 26.8x 2027F P/E, in line with international defence peers&rsquo average. We recommend investors stay invested, and await its strong growth delivery.