STEng – Phillip

Partners DCNS for major US defence project

Company Overview

ST Engineering (STE) is an integrated engineering group with exposures to four key business segments: Aerospace, Marine, Electronics and Land Systems. The company is also an anchor customer of Singapore’s defence industry.

  • STE partners DCNS for the USCG OPC contract
  • Long gestation period for the project
  • Greater clarity on the project when the USCG awards the initial contracts to three shipyards in 2013
  • Maintain Accumulate with unchanged TP of S$3.40

What is the news?

STE recently announced that their US based subsidiary, VT Halter Marine (VTHM), signed a partnership agreement with DCNS to submit a proposal to the Department of Homeland Security (DHS) for the design and construction of the US Coast Guard (USCG) Offshore Patrol Cutter (OPC). According to STE’s press release on the collaboration, VTHM would be the prime contractor and DCNS would be the exclusive subcontractor for the OPC platform design.

How do we view this?

According to the details disclosed by the USCG, there were 7 shipyards that had expressed interest in this project as of July 2012. Our research suggests that at least four of the shipyards have a history of business dealings with the USCG. Hence, we expect competition for this contract to be stiff. We believe that there should be greater clarity on the project when the USCG awards the initial contracts to three shipyards in 2013.

Investment Actions?

We remain positive and expect potential contract wins to catalyze the stock. Despite a significant rally since the start of the year, STE would still yield >4% on our estimates. Pending the release of STE’s results in early November, we kept our recommendations and estimates unchanged. Accumulate.

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