SINGAPORE TECH ENGINEERING LTD (SGX:S63)
ST Engineering - Acquiring Cash Generative Tolling Solutions
- The US$2.68bn (S$3.62bn) acquisition of US TransCore could add ~S$118m to ST Engineering’s net profit (7%) in FY23F.
- The deal is not cheap, at 16.2x FY20 EV/EBITDA (ST Engineering: 13x) and 31x FY21F P/E (ST Engineering: 20x), but is in line with ST Engineering’s plan to grow its smart city business.
- TransCore is also cash generative with 25% EBITDA margin vs STE electronics’ EBITDA margin of 10-11% in FY19-20.
- Completion will be by 1Q22F. We expect net gearing to rise to 1.5x but for ST Engineering to keep its target dividend payout (~90% over past 5 years of S$0.15).
Biggest M&A in ST Engineering’s history
- TransCore Partners, LLC and TLP Holdings, LLC are indirect wholly-owned subsidiaries of post 6% CAGR to reach US$2.5bn by 2030 and intelligent transportation systems to reach US$1.5bn in 2030. Both segments are expected to reach US$1.2bn (CAGR of 14-15%) in Southeast Asia by 2030.
High-graded ST Engineering’s portfolio of businesses
- We think sizeable M&A is the fastest way for ST Engineering to grow its smart city as a key business. Hence, channel acquisition is key. This has also high-graded ST Engineering’s portfolio of business and allows it to gain immediate access to the US transportation market from its current focus in Singapore and Asia. There is also technology synergy opportunity in the green/low emissions zone segment such as EV charging.
Valuations not cheap but margins high
- The deal, at 16.2x FY20 EV/EBITDA, is in line with current peers in the traffic systems business (Verra Mobility, Traffic Systems and IVU Traffic Technologies), which are on blended DCF, 20.7x CY22F P/E and 4% dividend yield.
- See
LIM Siew Khee
CGS-CIMB Research
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https://www.cgs-cimb.com
2021-10-04
SGX Stock
Analyst Report
4.540
SAME
4.540
