Boom Town!
- AOT has outlined plans to complete expansion and development works across all of its six airports within the next two years.
- We expect IPS to participate in tenders for supplying TSA-certified machines in the baggage and cargo scanners space, which could be worth up to USD250m.
- Heightened regional political instability could substantiate the need for Pepperballs, which is a positive for IPS.
- Maintain BUY and SGD1.01 TP (15% upside).
Six airports in Thailand to undergo expansion and development works.
- Airports of Thailand (AOT TB, TAKE PROFIT, TP: THB251.00) has outlined plans to complete expansion and development works across all of its six airports within the next two years.
- We expect IPS Securex (IPS) to participate in tenders for supplying the US Transportation Security Administration (TSA)-certified machines in the baggage and cargo scanners space, which may potentially be worth up to USD250m.
- Typically, one machine may cost USD5m-10m and the gross margin is about 15-20%, followed by maintenance as its recurring revenue, which yields much higher margins.
- This may potentially add to IPS’ earnings in FY16-17 if it is successful in the tenders.
Increased regional political instability could substantiate need.
- The spate of riots around the region and the growing dissent and distrust amongst the populace towards certain governments help to reinforce the need for more effective non-lethal weapons like PepperBall.
- Being the best-in-class product for mid-range crowd-control, we believe PepperBall stands to benefit from the ensuing boost in demand following any increase in government budgets for such products.
More to come – maintain BUY.
- The potential of PepperBall as a gamechanging, non-lethal countermeasure technology has been validated by the adoption by several countries this year.
- This should trigger a series of larger orders from neighbouring countries and bode well for IPS, which has the exclusive master distributor rights in the Asia-Pacific.
- We expect the full accretion from PepperBall-related products to come in FY16.
- We think the outlook is bright and positive for IPS, especially for its PepperBall-related products, which we expect to boost IPS’ earnings.
- Also, other products that it distributes, especially Hyperspike and cargo and baggage scanners, may also contribute positively to its NPAT.
- Maintain BUY and SGD1.01 TP, pegged to 7.4x FY16F P/E.
(Jarick Seet)
Source: http://www.rhbgroup.com/
