Singapore Technologies Engineering should benefit from a surge in defense spending globally, RHB Singapore's Shekhar Jaiswal says in a note.

The technology, defense and engineering company has growing potential for winning international defense contracts, diversifying its order book and improving capabilities in conventional and digital defense, the head of equity research says.

Despite its solid fundamentals, ST Engineering's year-to-date share-price gains lag those of regional peers, he adds.

The stock is trading below average valuations of regional peers even though the company has comparable margins, superior return on equity and higher yields, he says.

RHB raises the stock's target price to S$8.90 from S$8.30 while maintaining a buy rating. Shares are at S$7.92.