ST Engineering - CGS-CIMB Research 2021-03-30: Upping The Game

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

ST Engineering - Upping The Game

  • ST Engineering raises its offer to buy Cubic Corp from US$76/share to US$78/share, after Veritas Capital/Elliot revised their bid from US$70 to US$72/share.
  • ST Engineering will pay US$2.48bn for Cubic Corp with preliminary valuations of US$850m-950m for Cubic Mission & Performance Solutions. This means ST Engineering will pay US$1.5bn-1.6bn for Cubic Transportation Systems, or 12.9x-15x FY20 EV/EBITDA, in line with ST Engineering’s EV/EBITDA.
  • We hope this is the last bid ST Engineering offers as a prolonged pricing war could be a negative overhang on share price. Reiterate ADD and target price of S$4.00.



Let this be the end of the price war

  • Following ST Engineering (SGX:S63)’s bid last week to acquire Cubic Corp at US$76/share (see report), Veritas Capital/Elliot (Veritas) revised their bid from US$70/share to US$72/share. If successful, we previously estimated Cubic Transpiration Systems could add US$75m of EBIT to ST Engineering (16% of ST Engineering’s EBIT in FY21F).
  • According to our analyst in Raymond James, ST Engineering’s previous offer at US$76/share represents a NTM EV/EBITDA multiple of 17x vs a trailing 4-year average of 12.7x.
  • The new offer submitted by ST Engineering represents an 8.3% premium to Veritas’ latest bid, compared to 8.6% premium on the previous offer.
  • If successful, ST Engineering would pay US$2.48bn to acquire Cubic Corp. Preliminary valuation for Cubic Mission & Performance Solutions is in the range of US$850m-950m. This means ST Engineering will pay US$1.5bn-1.6bn for Cubic Transportation Systems, or 12.9x-15x FY20 EV/EBITDA, in line with ST Engineering’s EV/EBITDA.
  • ST Engineering said the group will fund the acquisition fully by debt but we do not rule out the possibility of equity fund raising in the future if there is a need to pare down gearing. This deal could raise ST Engineering’s gearing to 1.2x-1.3x, based on our estimates.


A long journey of negotiation; CMPS valued at US$850m-950m

  • The price war started on 22 Sep 2020 when Veritas announced a non-binding indication of interest to acquire Cubic Corp at US$60/share in cash.
    • On 29 Sep, Veritas revised its offer to US$65-67.50/share.
    • On 12 Nov 2020, ST Engineering delivered a non-binding interest to acquire Cubic at US$63/share in cash, before revising it to US$64-68/share on 9 Dec 2020.
    • On 14 Dec 2020, preliminary valuations were submitted by Blackstone which valued Cubic Mission and Performance Solutions (CMPS) at US$850m.
    • On 15 Dec 2020, Veritas raised its bid to US$67.50/share, and further to US$70/share on 19 Dec 2020.
    • On 29 Dec 2020, strategic party D offered to buy CMPS at US$850m-950m.
    • On 21 Jan 2021, ST Engineering revised its price range to US$72-75/share in cash, and
    • Finally on 19 Mar 2021, ST Engineering submitted a bid of US$76/share in cash to acquire Cubic Corp.

Reiterate ADD and target price of S$4.00 for ST Engineering






LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2021-03-30
SGX Stock Analyst Report ADD MAINTAIN ADD 4.000 SAME 4.000



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