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ST Engineering - OCBC Investment 2018-09-14: Undertakes Largest Acquisition To Date

SINGAPORE TECH ENGINEERING LTD (SGX:S63) | SGinvestors.io SINGAPORE TECH ENGINEERING LTD SGX:S63

ST Engineering - Undertakes Largest Acquisition To Date

  • Acquires MRA Systems from General Electric.
  • 10x EBITDA, 1.2x revenue.
  • Strategic acquisition with longer term benefits.



Large acquisition for aerospace segment

  • Singapore Technologies Engineering (STE) announced that its US subsidiary has entered into a conditional share purchase agreement with General Electric to acquire 100% ownership of MRA Systems (MRAS).
  • The aggregate purchase consideration for the proposed acquisition is US$630m (S$868m) on a cash-free and debt-free basis, subject to closing adjustments for underfunded pension obligations, other debt-like items, transaction expenses, net working capital and other contingent adjustments.
  • After closing adjustments, the net consideration is estimated to be US$440m (S$606m). This will be funded through internal cash and external borrowings, and will be satisfied fully in cash only at completion, which could be in 1Q19.


Financials and transaction multiples

  • The purchase price translates into 10x EBITDA and 1.2x revenue based on MRA Systems’ financials for the 12-month period ended 30 Jun 2018. The pre-tax profit of MRA Systems for 1H18 is about US$24.1m (S$33.22m). Annualising this, this would translate to S$66.4m or about 10% of our 2018 pre-tax profit forecast for ST Engineering.
  • The net asset value of MRA Systems as at end 1H18 was about US$331.5m (S$456.5m), while NTA was about US$65.1m (S$89.6m). 



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Good fit for the group

  • MRA Systems is an established Original Equipment Manufacturer (OEM) of engine nacelle systems for both narrowbody and widebody aircraft.
  • Based in Baltimore, Maryland, USA with about 800 employees, MRA Systems has two principal business lines:
    1. design, development, production and sale of nacelles, thrust reversers and aerostructures, and
    2. spare parts sales.
  • From ST Engineering’s point of view, this acquisition will allow it to scale up its aerospace capabilities by moving it into the OEM business of high-value nacelle components and replacement parts.
  • MRA Systems’ design, engineering and manufacturing know- how in advanced composite structures is also synergistic with ST Engineering’s composite manufacturing capabilities. Hence we believe this is a strategic acquisition for the group which will reap benefits in the long term, besides being earnings accretive.
  • We do not increase our FY19 earnings estimates by all of MRA Systems’ forecasted net profit, however, due to expected integration costs for the first year. Meanwhile, we update our estimates and our fair value rises to S$3.95.





Low Pei Han OCBC Investment Research | https://www.iocbc.com/ 2018-09-14
SGX Stock Analyst Report BUY Maintain BUY 3.95 Up 3.900



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