IPS Securex Holdings - RHB Invest 2015-12-02: Ready To Blast Off In FY16

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IPS SECUREX HOLDINGS LIMITED 41E.SI 

IPS Securex Holdings (IPSS SP) - Ready To Blast Off In FY16 

• As political instability grows around the region, ongoing disputes in certain countries and increasing national security concerns have led to higher government defence budgets around the region. This puts IPS at an advantage to benefit from this situation. 
• With such a bright outlook ahead due to additional potential incoming contracts, coupled with a potential special dividend in FY16F, we maintain BUY, with a SGD0.38 TP (23% upside) based on 7.2x FY16 P/E. 

 To be a key security provider in Asia. 

• IPS Securex (IPS) has signed a memorandum of understanding to acquire 40% of Yatai Security & Communications Pte Ltd and Avac Systems Pte Ltd for approximately SGD0.76m (3.7x P/E). 
• This acquisition is positive for IPS and complements its general security business, as it allows the group to expand its market share in Singapore and build up its general security business. 
• Going forward, we expect IPS to continue to potentially make more of such similar acquisitions as it aims to become a key homeland and general security player in Asia. 

 Pepperball letter of intent worth USD55m. 

• IPS has received a letter of intent from a dealer for the supply of PepperBall products worth USD55m to a government body in South-East Asia for a period of two years commencing Jul 2015. 
• We understand that revenue recognition for this contract will start from FY16. 

 Exciting FY16 ahead – maintain BUY. 

• 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. 
• In addition, we are also confident that IPS will go ahead to secure more orders, especially for Pepperball, Hyperspike and Cargo scanner-related products – with the expansion of six airports in Thailand. 
• With such a bright and positive outlook ahead, on top of a potential special dividend in FY16, we maintain BUY on IPS with a SGD0.38 TP based on a 7.2x FY16 P/E.

Juliana Cai RHB Research | http://www.rhbinvest.com.sg/ 2015-12-02

RHB Research SGX Stock Analyst Report BUY Maintain BUY 0.38 Same 0.38