RHB Research 2015-07-14: IPS Securex Holdings - Boom Town! Maintain BUY.

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/




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