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
- Negotiations are ongoing and we believe the outcome of the bid would be finalised over the next few days. We retain our target price for ST Engineering, still based on blended valuations (DCF, 19x CY22F P/E and 4% yield).
- See ST Engineering Share Price; ST Engineering Target Price; ST Engineering Analyst Reports; ST Engineering Dividend History; ST Engineering Announcements; ST Engineering Latest News.
- Re-rating catalysts: defence contracts and lifting of border restrictions.
- Downside risks: significant cost overruns and a new COVID-19 wave.
LIM Siew Khee
CGS-CIMB Research
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https://www.cgs-cimb.com
2021-03-30
SGX Stock
Analyst Report
4.000
SAME
4.000
