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.

No staffer assisting probe, says ST Engg

It’s also not aware of any ex-employee helping CPIB probe

ST Engineering has denied that any of its unit’s employees are assisting with Corrupt Practices Investigation Bureau (CPIB) investigations being carried out on the former chiefs of the Singapore Civil Defence Force (SCDF) and Central Narcotics Bureau (CNB).

In a statement issued yesterday as a clarification to The New Paper’s (TNP) report, the group said: ‘We wish to clarify that none of ST Electronics’ executives has been called up by the CPIB to assist with investigation referred to in The New Paper’s report.’

TNP had reported yesterday that it ‘understands that an ST Electronics executive is assisting with CPIB’s investigation’.

ST Electronics is the electronics arm of ST Engineering and had been awarded a $34 million deal by the SCDF for a command-and- control system in 2009.

Asked whether any of its former employees are assisting in the investigations, ST Engineering said that it was not aware of any ex-employees being investigated.

On whether any of the deals involving ST Engineering was a matter of interest for the investigations, a spokesman said, ‘We have no privy information as to which project or projects are investigated by the CPIB.’

Previous media reports have mentioned a female executive working for a supplier of IT products and services as the link between the two men being investigated.

Former SCDF chief Peter Lim Sin Pang was arrested on Jan 4 while his counterpart Ng Boon Gay – formerly director of the CNB – was arrested on Dec 19 last year.

Both – currently out on bail – were arrested under the Prevention of Corruption Act following allegations of ‘serious personal misconduct’ and have since been replaced at their respective agencies.

In a statement on Wednesday night, Head of Civil Service Peter Ong said: ‘I am sure the news of the investigations must have come as a shock to my fellow public officers.

‘I would urge them to remain steadfast in their duties and committed to the core values of the Public Service which are integrity, service, and excellence, and not let this affect our commitment to serve Singapore and Singaporeans.’