Starburst Holdings - DBS Research 2016-02-29: Niche defence play

Starburst Holdings - DBS Research 2016-02-29: Niche defence play STARBURST HOLDINGS LIMITED 40D.SI 

Starburst Holdings - Niche defence play 

  • Net loss of S$1.7m in FY15, below expectations 
  • Balance sheet remains healthy 
  • Benefitting from the global trend of rising terrorism threats 
  • Maintain BUY, TP: S$0.37 


 Demand intact; expect a better FY16F. 

  • Starburst is one of the few integrated defence plays globally. It is a beneficiary of the higher defence spending in Southeast Asia and the Middle East. 
  • We continue to expect growth in the Middle East, despite decline in oil prices. The global trend of rising terrorism threats bodes well for the group. 
  • Starburst expects to secure more contracts for firearm shooting ranges and tactical training mock-ups to add to its orderbook in FY16. Maintain BUY, TP S$0.37. 

 New factory to double production capacity. 

  • Starburst’s new factory will enable the Group to increase its fabrication efficiency and capacity, and to undertake a higher number as well as larger projects simultaneously. 

 Net loss of S$1.7m in FY15. 

  • Starburst recorded revenue of S$15.9m and a net loss of S$1.7m in FY15, significantly below FY14’s revenue of S$39.4m and a reversal of a net profit of S$13.2m in FY14. The loss incurred nearly doubled our forecast net loss of S$0.9m on revenue of S$18.4m. 
  • The weak performance was because for FY15, the existing projects were in completion stage while the new contracts are still at the beginning of fabrication work phase, thus project revenue recognition is at a lower level, as compared to the higher value-added fabrication work phase in FY14. 

Valuation: 

  • Our target price of S$0.37 is based on 12x FY16F PE, which is pegged to 30% discount to peers’ average of 16x forward PE. 
  • We believe players in this industry will remain niche as the growth potential is not particularly attractive for new players in this already mature industry. 
  • Furthermore, pre-requisites such as specialised technical skills and established track record may deter new entrants. 
  • Our FY16F earnings are adjusted marginally down by 5% as we push back the recognition of contract wins. 

Key Risks to Our View: 

  • Mainly dependent on project-based non-recurring contracts. Starburst’s business is largely made up of non-recurring contracts, which is dependent on its ability to secure new contracts.



LING Lee Keng DBS Vickers | http://www.dbsvickers.com/ 2016-02-29
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.37 Same 0.37


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