Month: February 2012
STEng – CIMB
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.
STEng – BT
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.
STEng – BT
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
SBSTransit – BT
SBS Transit profit falls 32.4% to $36.7m
HIGHER fuel and staff costs slowed down SBS Transit in 2011, with its net profit for the full year ended Dec 31 sagging 32.4 per cent to $36.7 million.
But SBST’s full-year revenue crept up 4.2 per cent to $751.1 million while operating expenses rose 7.5 per cent to $705.4 million. As a result, full-year operating profit fell 29.4 per cent to $45.7 million. No fourth quarter numbers were released.
SBST is a unit of land transport giant ComfortDelGro. Its fleet of about 3,000 buses accounts for three-quarters of all public buses in Singapore. It also operates a rail network about a third the size of SMRT Corp’s.
Its revenue from bus operations rose 3.1 per cent to $566.1 million from the previous year on an increase in average daily ridership of 6 per cent, although this was offset by a lower average fare. But higher diesel and staff costs caused the bus division to suffer an operating loss of $6 million compared with an operating profit of $14.9 million in 2010 despite higher bus fare revenue.
As for rail operations, 2011 revenue rose 10.5 per cent to $134.4 million as average daily ridership for the North-East Line and the two Light Rail Transit systems climbed 12.9 per cent and 15.7 per cent respectively.
Despite lower average fares, operating profit improved 12.5 per cent to $19.7 million mainly because of higher rail fare revenue but offset by higher electricity and staff costs.
The revenue from advertising slipped 0.3 per cent to $36.2 million. On the other hand, rental revenue rose 3.9 per cent to $14.4 million on higher income from roadshows at the interchanges. But higher staff costs caused operating profit to slip 0.2 per cent to $10.3 million.
SBST’s FY11 earnings per share slumped to 11.87 cents from FY10’s 17.61 cents. But net asset value of 107 cents at end-2011 was higher than the 103 cents 12 months earlier.
A final dividend of 2.8 cents per share has been proposed, lower than the previous year’s 4.3 cents.
Looking ahead, SBST anticipates bus and rail ridership to increase at a slower rate due to the weaker economic growth expected.
Given the current price trend, the company also sees higher fuel and electricity costs, while staff costs are likely to grow with salary increments and higher foreign workers’ levy. Depreciation costs will rise with the renewal and expansion of the bus fleet, and all these will impact the bus segment significantly. Start-up costs are also expected for the Downtown Line, following the recent tender award.
SBSTransit – BT
SBS Transit profit falls 32.4% to $36.7m
HIGHER fuel and staff costs slowed down SBS Transit in 2011, with its net profit for the full year ended Dec 31 sagging 32.4 per cent to $36.7 million.
But SBST’s full-year revenue crept up 4.2 per cent to $751.1 million while operating expenses rose 7.5 per cent to $705.4 million. As a result, full-year operating profit fell 29.4 per cent to $45.7 million. No fourth quarter numbers were released.
SBST is a unit of land transport giant ComfortDelGro. Its fleet of about 3,000 buses accounts for three-quarters of all public buses in Singapore. It also operates a rail network about a third the size of SMRT Corp’s.
Its revenue from bus operations rose 3.1 per cent to $566.1 million from the previous year on an increase in average daily ridership of 6 per cent, although this was offset by a lower average fare. But higher diesel and staff costs caused the bus division to suffer an operating loss of $6 million compared with an operating profit of $14.9 million in 2010 despite higher bus fare revenue.
As for rail operations, 2011 revenue rose 10.5 per cent to $134.4 million as average daily ridership for the North-East Line and the two Light Rail Transit systems climbed 12.9 per cent and 15.7 per cent respectively.
Despite lower average fares, operating profit improved 12.5 per cent to $19.7 million mainly because of higher rail fare revenue but offset by higher electricity and staff costs.
The revenue from advertising slipped 0.3 per cent to $36.2 million. On the other hand, rental revenue rose 3.9 per cent to $14.4 million on higher income from roadshows at the interchanges. But higher staff costs caused operating profit to slip 0.2 per cent to $10.3 million.
SBST’s FY11 earnings per share slumped to 11.87 cents from FY10’s 17.61 cents. But net asset value of 107 cents at end-2011 was higher than the 103 cents 12 months earlier.
A final dividend of 2.8 cents per share has been proposed, lower than the previous year’s 4.3 cents.
Looking ahead, SBST anticipates bus and rail ridership to increase at a slower rate due to the weaker economic growth expected.
Given the current price trend, the company also sees higher fuel and electricity costs, while staff costs are likely to grow with salary increments and higher foreign workers’ levy. Depreciation costs will rise with the renewal and expansion of the bus fleet, and all these will impact the bus segment significantly. Start-up costs are also expected for the Downtown Line, following the recent tender award.