Hit by contract delays
- 1H15 expected to be weak due to delay in contract awards
- Expect a strong recovery in FY16 and FY17
- Beneficiary of higher defence spending in Southeast Asia and the Middle East
- Maintain BUY, TP cut to S$0.56
1H15 weak due to delay in contract awards.
- Delay in the award of contracts has led Starburst reporting a net loss of S$0.5m for 1Q15.
- We see another set of weak results in 2Q15, as contract flow in 1H15 has been slow.
- However, we expect 2H15 to be better, with the recent signing of LOI for a S$16.1m contract.
Expect a strong recovery in FY16 and FY17.
- We have pushed back the award of contracts originally slated for FY15 to FY16, and those for FY16 to FY17/FY18. Based on progressive booking method, we expect Starburst to book revenue of S$22m for FY15F, which is similar to its FY13 level, before the ramp-up in FY14.
- We see a strong recovery in FY16 and FY17, with the expected award of a few big contracts in the range of S$20m to S$60m.
Outlook remains buoyant.
- Starburst, a niche defence play, is a beneficiary of higher defence spending in Southeast Asia and the Middle East.
- SEA is actively upgrading and modernising facilities, partly to protect critical infrastructure whereas in the Middle East, the implementation of compulsory military services is propelling demand for new shooting ranges in Middle East.
Maintain BUY, TP cut to S$0.56.
- Our target price of S$0.56 is based on 12x FY16 PE, which is pegged to a 40% discount to peers’ average of 20x forward PE.
- Key risks include lumpy project wins and customer concentration as Starburst’s contracts are mainly from government agencies.
- Maintain BUY.
(LING Lee Keng)
Source: http://www.dbsvickers.com/
