IPS Securex Holdings - RHB Invest 2015-11-02: Acquires Yatai And Avac

IPS Securex Holdings (IPSS SP) - RHB Invest 2015-11-02: Acquires Yatai And Avac IPS SECUREX HOLDINGS LIMITED 41E.SI 

IPS Securex Holdings (IPSS SP) - Acquires Yatai And Avac 

  • IPS Securex signed a MOU to acquire 40% of Yatai and Avac for about SGD0.76m (3.7x FY15F P/E); it also has a 2-year irrevocable call option to purchase the 60% balance. 
  • We expect it to make more similar acquisitions with the aim of establishing itself as a prominent security player in the Asia Pacific region. 
  • Due to its 1:3 share split, our TP is now SGD0.38 (from SGD1.15, 31% upside); we maintain BUY

 Acquisition of Yatai Security & Communications Pte Ltd (Yatai) and Avac Systems Pte Ltd (Avac). 

  • IPS Securex announced it signed a memorandum of understanding (MoU) to acquire 40% of Yatai Security and Communications Pte Ltd and Avac Systems Pte Ltd for approximately SGD0.76m (3.7x FY15 P/E). It would also have a 2-year call irrevocable option to purchase the remaining 60% stake based on the net tangible asset at the time of exercising the option. 
  • Both Yatai and Avac are obliged to sell the remaining respective stakes to IPS Securex. This acquisition would be completely funded by internal cash flow and would increase its EPS to SGD0.51 cents per share from SGD0.47 cents per share, as projected by the management. However it is only mildly accretive for our FY16 forecasts, due to the small absolute value in terms of net profit. 

 Intends to be a key security provider in Asia. 

  • This acquisition is positive for IPS Securex and complements its general security business. It also allows the company to expand its market share in Singapore and build up its general security business. 
  • Going forward, we expect IPS Securex to potentially make more of such similar acquisitions as the company aims to establish itself as a key homeland and general security player in Asia. 

 Maintain BUY with potential contracts incoming. 

  • With the ongoing political instability increasing around the region, we expect more contracts to be secured in the near future – particularly from its Pepperball, Hyperspike and Cargo scanner-related products, with the expansion of six airports in Thailand. 
  • We are also expecting a potential special dividend in FY16, if it manages to boost earnings then. With such a bright outlook ahead, we remain bullish on this counter. 
  • To increase its liquidity, the company previously performed a 1:3 share split. 
  • Maintain BUY with a TP of SGD0.38, based on 7.2x FY16 P/E.

Jarick Seet RHB Research | http://www.rhbinvest.com.sg/ 2015-11-02
RHB Research SGX Stock Analyst Report BUY Maintain BUY 0.38 Down 1.15