IPS Securex Holdings - RHB Invest 2015-12-16: Spiking Its Way Up

IPS SECUREX HOLDINGS LIMITED 41E.SI

IPS Securex Holdings - Spiking Its Way Up

IPS has secured a 5-year USD64.46m LOA for the sale of Hyperspike acoustic hailing devices and supporting accessories to a South-East Asian government body – a significant positive and provides it with stable USD12.9m average annual income during this period.
Maintain BUY with a slightly higher DCF-backed SGD0.40 TP (from SGD0.38, 29% upside, 0% TG and 10.5% WACC) as we remain positive on this stock.

IPS Securex (IPS) has secured a letter of award (LOA) worth USD64.46m for the sale of Hyperspike acoustic hailing devices and their supporting accessories. The sale is to a certain government body in South-East Asia over a period of five years by Dec 2020. This is IPS’ largest win to date on the Hyperspike front and is a testament to the product’s quality and market acceptance.
The deal is likely to provide a significant positive bump and, at the same time, provide a stable USD12.9m base to its earnings for the next five years.

Previously, we highlighted that Airports of Thailand (AOT TB, TAKE PROFIT, TP: THB251.00) had outlined plans to complete expansion and development works across all six of its airports within the next two years.
We also stated that IPS was likely to participate in tenders to supply US Transportation Security Administration (TSA) certified machines in the baggage and cargo scanners space. The result of this tender is likely to be revealed in Jan 2016 and we expect IPS to secure at least USD150m worth of tenders on this front.

Due to certain production delay issues, as well as incorporating some lag time in revenue recognition, we recognise USD25m worth of PepperBall orders in FY16 (Jun), shifting the remaining USD25m balance to FY17.
With secured contracts over a longer term providing stability to IPS’ earnings, we have also switched our valuation methodology to DCF. This resulted in a slightly higher DCF-based SGD0.40 TP on conservative 0% TG and 10.5% WACC backed by 11x FY17F P/E.
With a higher focus on more stringent security due to terrorist activities, we remain positive on IPS’ future prospects.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2015-12-16

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.40 Up 0.38