ST Engineering
SINGAPORE TECH ENGINEERING LTD
S63.SI
ST Engineering loses out on next-gen ERP contract under Smart Nation initiative
- LTA awards contract to NCS-MHI consortium, who bid less than half of ST Electronics bid
- Near-term setback, but this is only the start of Smart Nation contracts
- Maintain BUY on STE as a safe haven dividend play
What happened?
- The Singapore Land Transport Authority yesterday decided to award the next-generation road pricing system (ERP) tender to a consortium of NCS (the home-grown IT services company and subsidiary of Singtel) and Mitsubishi Heavy Industries (MHI). They beat two other consortia to the project, for which development will start in 2Q16 and finish by 2020.
- NCS-MHI bade S$556m for the contract, while ST Electronics bade S$1.26bn for the same, and hence lost out.
- The other consortium did not make it to the bidding stage.
- NCS maintains the current ERP system, which was built by MHI when it was first introduced in 1998.
Our views
- This project is one of the major ones under Singapore's Smart Nation vision, which we had highlighted earlier will be a key growth driver for ST Engineering's electronics division. Hence, this news is somewhat of a disappointment to start off with, and could cause some near-term negative sentiment for the stock.
- However, there are several other projects under the Smart Nation umbrella, including Smart Traffic management systems, Smart Water management, Smart Waste management, Estate Energy management and Smart Healthcare systems where ST Engineering has an existing track record and should be able to secure contracts in the future.
- Thus, we continue to have a positive view on the stock as steady earnings and dividends provide a safe haven in the current uncertain and volatile market environment.
- Full-year FY15 results will be released today.
Suvro SARKAR
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2016-02-26
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