Industrials cement their role as the STI's earnings growth engine

• Industrials, the STI's second-largest sector by market capitalisation, are emerging alongside banks as a key driver of the index's earnings growth.

• ST Engineering's record SGD 34.5 billion order book and diversified business portfolio provide strong earnings visibility, underpinned by sustained demand across its core businesses.

• Yangzijiang Shipbuilding's USD 22.3 billion order book, 17% capacity expansion and strategic partnerships underpin multi-year growth and strengthen execution visibility.

• Keppel is enhancing earnings quality through expanding recurring fee income and a growing digital infrastructure platform, reducing reliance on one-off monetisation gains.

• Together with resilient bank profitability, industrials are broadening the STI's earnings base and helping to offset the softer outlook for S-REITs, reinforcing our constructive view on Singapore market.

The Straits Times Index (STI) has continued its strong run through 2026, reaching fresh record highs in July and delivering a robust double-digit total return year to date. The rally has been supported by a combination of valuation re-rating following a series of market initiatives and strengthening corporate earnings across the index.

While Singapore banks continue to anchor the STI with resilient earnings, supported by robust non-interest income growth and the stabilisation of net interest income, the index's second-largest sector by market capitalisation—industrials—is emerging as an increasingly important contributor to earnings growth. Based on the market-cap-weighted average of consensus EPS forecasts, STI industrials are expected to deliver 30% EPS growth in 2026. This exceeds the expected earnings growth of both banks and S-REITs, while also outpacing the STI's blended earnings growth.

Figure 1: Industrials lead STI earnings growth in 2026 and beyond

Leading industrial constituents such as ST Engineering, Keppel and Yangzijiang Shipbuilding are each supported by various earnings drivers, reinforcing the sector's growing role in underpinning the STI's performance.

Related article: Non-bank, non-REIT constituents lead STI earnings growth in 2026

ST Engineering: Record backlog converting into multi-year earnings visibility

ST Engineering continues to offer one of the strongest earnings visibility profiles among STI industrial constituents, underpinned by a record order book and broad-based demand across its core businesses. In its 1Q2026 business update, the group secured SGD 4.8 billion of new contracts, lifting its order book to a record SGD 34.5 billion. Among this, approximately SGD 8 billion is scheduled for delivery over the remainder of 2026, providing a substantial pipeline of contracted revenue that supports earnings over the coming quarters while reinforcing visibility beyond the current financial year.

The group's growth remains broad-based across all business segments. Commercial Aerospace continues to benefit from sustained demand for engine maintenance, repair and overhaul (MRO) services and nacelles, reflecting the ongoing recovery in global aviation. Meanwhile, Defence & Public Security stands to benefit from rising global defence spending. Management has reaffirmed its target of securing at least SGD 1.2 billion in international defence orders in 2026, with active pursuits spanning land and naval platforms, munitions, and satellite systems across multiple regions. This suggests that future growth is increasingly supported by overseas opportunities, complementing its resilient domestic business and further diversifying its earnings base.

Beyond converting its existing order book, ST Engineering is also laying the groundwork for future growth. Recently, its Commercial Aerospace business signed a memorandum of understanding with Odys Aviation to jointly develop a hybrid-electric propulsion system for the DrN-600 medium-lift cargo drone, with both parties working towards a formal development agreement. While the initiative is unlikely to contribute meaningfully to near-term earnings, it demonstrates management's continued investment in emerging aerospace technologies and its commitment to cultivating new revenue streams over the longer term. Taken together, ST Engineering's record order book, diversified business portfolio, and continued investment in next-generation technologies provide a strong foundation for sustained earnings growth through the remainder of 2026 and beyond.

Yangzijiang Shipbuilding: Expanding capacity supports the next phase of growth

Similar to ST Engineering, Yangzijiang Shipbuilding also benefits from one of the largest order books in the global shipbuilding industry, providing multi-year earnings visibility. As of May 2026, the group had an outstanding order book of USD 22.3 billion spanning 252 vessels, with deliveries scheduled through 2030. Approximately 69% of the order book comprises clean-energy vessels, providing multi-year revenue visibility while positioning the group to benefit from the global transition towards more fuel-efficient fleets. Management has also reaffirmed its 2026 targets of securing USD4.5 billion in new orders and delivering 58 vessels, supporting earnings momentum through the remainder of the year.

Beyond its sizeable order book, Yangzijiang's earnings outlook is further supported by increasing production capacity. The Hongyuan shipyard, located adjacent to the group's existing Xinfu facility, has completed testing and is expected to commence operations by the end of 2026. Once operational, the new yard is expected to increase annual production capacity by around 17%, providing additional headroom for order execution while supporting future volume growth as its delivery pipeline expands.

The group is also strengthening its strategic position across the maritime value chain. In June, Yangzijiang completed the acquisition of a 10% stake in Poseidon Acquisition Corp, the parent company of Seaspan, the world's largest container ship lessor. Beyond the financial investment, the partnership is expected to deepen customer relationships and better align vessel demand with the group's long-term yard development strategy, enhancing order visibility over time. Together with a favourable mix of higher-value clean-energy vessels, these initiatives are expected to support both earnings quality and long-term growth, reinforcing Yangzijiang's position as one of the key earnings contributors within the STI industrial sector.

Keppel: Expanding recurring income strengthens long-term earnings growth

Unlike ST Engineering and Yangzijiang Shipbuilding, whose earnings visibility is anchored by strong order books, Keppel's growth is increasingly driven by its ability to convert its monetisation and fund management pipeline into long-term recurring income.

This transformation is reflected in the continued expansion of its fund management platform. Asset management fees rose 13% year-on-year to SGD 108 million in 1Q2026, supported by approximately SGD 400 million of new funds under management and a further SGD 2 billion of investor commitments being finalised. As these commitments are deployed, they are expected to expand Keppel's recurring fee income, further reducing reliance on one-off asset monetisation gains.

Beyond asset management, Keppel continues to grow its digital infrastructure platform. In July, the group secured the fifth and final customer for its Bifrost subsea cable system—the first cable network directly linking Singapore to the US West Coast via Indonesia. With the system now fully committed, it is expected to generate approximately USD 1.3 billion in contract value, including operations and maintenance income, over 25 years, with an internal rate of return of around 30% for Keppel and its co-investors. Management has also indicated that two additional subsea cable systems are under evaluation, highlighting a scalable platform for future growth rather than a one-off project.

Keppel is also expanding its AI-ready data centre footprint. The group recently entered South Korea, securing construction permits and power approvals for a new data centre targeted for completion by 2030. Designed to Tier III-equivalent specifications, the facility is expected to serve hyperscalers, cloud service providers and enterprise customers, allowing Keppel to capitalise on growing AI-driven demand for digital infrastructure. Together, these initiatives continue to deepen Keppel's recurring income base and support a more resilient, higher-quality earnings profile over the long term.

Industrials strengthen the STI investment case

While each company is supported by different earnings drivers—from ST Engineering's and Yangzijiang Shipbuilding's sizeable order books to Keppel's growing recurring income—all three point to sustained earnings momentum through the second half of 2026. Together with resilient bank earnings, these industrial leaders provide an additional engine of growth for the STI, helping to offset the softer outlook for S-REITs amid the evolving interest rate environment. This reinforces our constructive view on the Singapore market, with industrials playing an increasingly meaningful role in broadening and strengthening the STI's earnings base.

Related articles: Singapore Outlook 2H26: Yield, growth and revitalisation in one market

S-REITs: Selectivity remains key in a higher-for-longer rate environment

For investors seeking diversified exposure to Singapore equities, we continue to recommend positioning through the Amova Singapore STI ETF (SGX: G3B) for broad, low-cost exposure, and the iFAST-Amova Singapore Equity A SGD for investors seeking higher SMID-cap exposure beyond the STI 30 blue chips.

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report, including all investment theses, ratings, price targets and conclusions, has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.