ST Engg offer to Nera good for all: DMG analysts

THE offer by Singapore Technologies Engineering (ST Engg) to take Nera Telecommunications private is – according to DMG & Partners Research – a positive move for both companies and their shareholders.

In a report released yesterday, Edison Chen and Terence Wong of DMG said that ‘the valuation is fair and (Nera) shareholders should accept the offer’.

Calling it a win-win outcome, the analysts said: ‘The acquisition allows (ST Engg’s electronics arm) to leverage Nera’s in-depth expertise in system integration in the fields of both telecommunications and info-communications, to enhance its existing business in terrestrial and wireless broadband networks.’

‘On the other hand, shareholders of Nera can also monetise their investments with an offer price that is equivalent to 12.1x FY2011 price-to-earnings (8.6 ex-cash), and is around our intrinsic value estimates of 47 cents per share.’

Late last Friday night, ST Engg announced the move to acquire Nera by way of a scheme of arrangement. If successful, the move will see the generally thinly-traded Nera delisted from the Singapore Exchange (SGX) mainboard.

Nera shareholders stand to receive an aggregate cash amount of 45 cents per share, comprising 6 cents to be paid by Nera as a cash dividend, and 39 cents to be paid by ST Engg. The acquisition consideration, excluding the dividend, is $141.1 million.

Said the analysts: ‘Since we put up a ‘buy’ recommendation for Nera back in October 2011, the share price has surged 43 per cent, surpassing our target price of 47 cents. The offer price may be lower than the last traded, but this is largely due to investors playing up the shares of what was once a quiet stock.’

ST Engg said separately yesterday that its marine arm has won two shipbuilding contracts worth about $75 million from a wholly owned subsidiary of Swire Pacific. It also announced that wholly-owned ST Electronics (Info-Comm Systems) has acquired a further 2.77 per cent stake in Telematics Wireless for US$1.1 million.

Nera’s share price fell 11 per cent to close trading at 44.5 cents yesterday. ST Engg closed 0.33 per cent higher at $3.

The awakening

It has been more than five years since STE made a big purchase. Its latest acquisition of Singapore’s Nera Telecommunications could be a hint of its re-focus on Asia.

Maintain Outperform, earnings estimates and target price, still based on blended valuations (P/E, dividend yields and DCF). Its latest acquisition should strengthen its Electronics business, its second largest after Aerospace.

What Happened

STE via its electronics division, ST Electronics, has acquired a 100% stake in Nera Telecommunications for S$141m. The acquisition, subject to court and Nera shareholders’ approval, will be followed by Nera’s delisting from FSSTI. Controlling shareholder, Eltek ASA (50.5%),has irrevocably undertaken to vote in favour of the transaction. The acquisition will be funded internally.

Nera is a provider of products, solutions and services ranging from satellite communications and wireless infrastructure networks to internet protocol, optical and broadcast network infrastructure. Headquartered in Singapore, it was established in 1978 with strong operations in Singapore and Asia.

What We Think

STE’s last major M&A was in 2005-06,with the acquisitions of overseas companies including US iDirect and BR Lee and Denmark SAS Component. We believe the acquisition of Nera could be a sign of more M&As to come in Asia.

The acquisition should add immediately to earnings and cash flows. Nera has a clean balance sheet with zero debt (cash of S$46m). The purchase price of10x CY11 P/E appears reasonable vs. STE’s valuation (16.5x). We estimate contributions of8% to ST Electronics’s PBT or 2% to STE’s EPS. We keep our earnings estimates for now as our forecasts allow for acquisition-powered growth.

What You Should Do

Stay invested. STE has been a laggard to the other conglomerates (KEP and SCI) in the recent rally. Its share price is up only11% YTD vs. peers’20%. It is trading at 1STD below its 5-year mean and close to
its trough of 15x.

ST Engineering to take Nera private in $141.1m buyout

Shareholders to get 45 cents a share; deal helps ST grow networks business

SINGAPORE Technologies Engineering (ST Engineering) has announced that it is planning to acquire Nera Telecommunications for approximately $141.1 million, in a bid to grow its electronics arm’s communications infrastructure business.

The move, if successful, will see the generally thinly-traded Nera delisted from the Singapore Exchange (SGX) mainboard, and privatised.

In a filing to the SGX late on Friday night, ST Engineering said that the acquisition will be effected by way of a scheme of arrangement under Section 210 of the Companies Act.

The takeover is subject to court and regulatory approvals. It also requires the approval of Nera shareholders holding not less than 75 per cent in value of the company’s shares.

Eltek ASA, being the 50.05 per cent controlling shareholder of Nera, has given an irrevocable undertaking to vote in favour of the scheme.

If the scheme becomes effective, shareholders will receive an aggregate cash amount of 45 cents for each share. This comprises 6 cents to be paid by Nera as a cash dividend, amounting to approximately $21.7 million; and 39 cents to be paid by ST Engineering, amounting to approximately $141.1 million.

Said Tan Pheng Hock, president and chief executive officer of ST Engineering: ‘The acquisition is consistent with our group’s strategy to expand and extend our capabilities and services in promising new segments and products, and to strengthen our global competitive edge.’

Established in 1978 and headquartered in Singapore, Nera offers a range of products and services from satellite communications and wireless infrastructure networks, to internet protocol, optical and broadcast network infrastructure. As at Feb 9, it has a market capitalisation of approximately $171.9 million.

ST Engineering also said that the acquisition will ‘complement and enhance (its) existing business in terrestrial and wireless broadband networks.’

It intends to retain Nera’s current management team and employees after the acquisition, and will conduct a ‘comprehensive review’ of Nera’s businesses over 12 to 18 months.

ST Engineering also said that a document containing the full details of the scheme and notice of the scheme meeting – required to solicit the approval of shareholders – ‘will be despatched to shareholders in due course’.

PricewaterhouseCoopers Corporate Finance Pte Ltd has been appointed the financial adviser for the acquisition.

Nera closed trading on Friday – when it requested for a trading halt in the afternoon – 2.5 cents higher, at 50 cents per share.

On the same day, Nera released its results for the fourth quarter ended Dec 31, 2011. Turnover slipped 1.2 per cent to $47.9 million, while net profit rose 42.7 per cent to $6.05 million.

ST Engg unit to buy S’pore’s Nera for US$112m

Singapore Technologies Engineering Ltd (ST Engineering) said late on Friday it plans to buy satellite telecommunication firm Nera Telecommunications Ltd for S$141.1 million (US$112 million).

The purchase will be made via ST Engineering unit, Singapore Technologies Electronics Ltd (ST Electronics), which has entered into an agreement to buy Nera shares held by majority shareholder Eltek ASA. Eltek controls 50.05 per cent of Nera.

ST Electronics intends to take Nera private, ST Engineering said.

ST Engineering said the acquisition is expected to be financed by internal cash resources and named PricewaterhouseCoopers Corporate Finance Pte Ltd as its financial adviser.

Nera shares finished 5.26 per cent higher on Friday at S$0.50 apiece, above the S$0.45 offered by ST Electronics.

ST Engineering provides services to the aerospace, electronics, land systems and marine sectors. It is also the city-state’s main arm maker. — REUTERS

ST Aerospace wins $350m worth of deals in last quarter of 2011

SINGAPORE Technologies Aerospace, the aerospace arm of Singapore Technologies Electronics, finished 2011 on a high, bagging $350 million worth of contracts in the last quarter of the year.

ST Engineering said yesterday that the contracts will be carried out at its network of facilities and affiliates in the Americas, Asia Pacific and Europe.

However, they are not expected to have any material impact on the consolidated net tangible assets per share and earnings per share of ST Engineering for the current financial year.

Between last October and December, the aircraft maintenance and modification business group secured new airframe contracts involving base maintenance, heavy maintenance, passenger-to-freighter (PTF) conversion and interior refurbishment on various commercial and military aircraft platforms.

New component contracts were secured by its component total support business group, which includes Maintenance-By-the-Hour (MBHTM), repair management, avionics and mechanical component maintenance, aerostructures and thrust reverser repair, and landing gear repair and overhaul.

The engine total support business group clinched new engine maintenance contracts. In addition, its leasing joint venture was awarded a contract from Lion Air for the lease of three CFM56-7B engines over 10 years.

ST Aerospace redelivered 101 aircraft for airframe-related maintenance and modification work, five Boeing 757-200 converted freighters to FedEx Express, and serviced 72 engines and 13,382 components for both commercial and military customers.

In October, ST Aerospace’s US$78 million engine maintenance, repair and overhaul (MRO) facility in Xiamen commenced operations, providing MRO and total support for the CFM56-7B and CFM56-5B series of engines.

In addition, the aerospace arm was certified as a Part 147 Maintenance Training Organisation by the Civil Aviation Authority of Singapore and European Aviation Safety Agency, to provide aircraft type training for narrow-body and wide-body aircraft.