Starburst Holdings - OCBC Investment 2017-03-08: Ceasing coverage

Starburst Holdings - OCBC Investment 2017-03-08: Ceasing coverage STARBURST HOLDINGS LIMITED 40D.SI

Starburst Holdings - Ceasing coverage

  • FY16 net loss widened.
  • Marina One project an expensive lesson.
  • Uncertain pipeline from Middle-East 

FY16 dragged by project delay at Marina One.

  • Starburst Holdings' (Starburst) FY16 net loss widened 605.7% to S$11.7m despite a 14.8% increase in revenue to $18.3m, as project delays at Marina One continued to put a drag on its earnings. 
  • Revenue growth was driven by: 
    1. the different work phases that its projects were in (percentage of completion revenue recognition), 
    2. Marina One architectural steel project, and 
    3. design, fabrication and installation work phases for three firearm shooting range projects in the Middle East (compared to final phases of two projects in FY15 that recognized lower revenue).
  • Project and production costs surged 75.9% to S$21.2m, with the increase mainly due to higher fabrication and installation costs as well as provision made for foreseeable losses on the Marina One architectural steel project as a result of the project delay. Consequently, total operating expenses increased 54.1% to S$29.1m for FY16. 
  • Starburst’s bottom line was further worsened by an income tax expense of S$1.0m incurred in FY16 (due to de-recognition of a deferred tax asset) compared to a S$1.2m income tax benefit in FY15.

No near-term catalysts on uncertain project pipeline 

  • The Marina One project has been an expensive lesson as the project delay, which is beyond Starburst’s control, resulted in almost double digit loss on the entire project. Also, it remains uncertain whether Starburst will be compensated for the costs incurred arising from this delay.
  • Furthermore, while oil prices have since rebounded from all-time lows, we believe project pipeline from the Middle-East remains uncertain. Any projects made available now will certainly face increased competition after a period of rather dry spell relative to when oil prices were above US$100/bbl. 
  • Finally, even though the Singapore government recently announced a S$900m, decade-long project to revamp a large training area in Singapore, we expect any potential projects under Starburst’s scope to be back-end loaded and unlikely to be recognized in the near-term.

Ceasing coverage 

  • Given the lack of earnings visibility, we expect Starburst outlook to remain weak and uncertain.
  • Due to lack of market liquidity and re-allocation of internal resources, we are ceasing coverage on Starburst.

Eugene Chua OCBC Investment | 2017-03-08
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