ST Electronics wins S$58m of deals

ST Electronics wins S$58m of deals. ST Engineering’s (STE) electronics arm – ST Electronics (STEL) – has secured contracts worth around S$58m for Intelligent Transport Systems (ITS) and Info-Security (IS) projects as orders continue to flow in. Earlier in Jun, its marine arm – ST Marine (STM) – announced that it won a shipbuilding contract worth S$171m from Swire Pacific Offshore Operations to build four offshore supply vessels.

ITS deals worth S$30m. According to STE, the various ITS projects will total S$30m, where STEL will implement an Automatic Fare Collection System for the extension of the Bangkok Mass Transit System Silom Line in Bangkok, which will be delivered by end 2012; STEL will also deliver a number of “eco-enabling traffic management improvement projects” on the roads in Asia. In addition, STEL will provide consultancy expertise for an Integrated Transport Platform (ITP) project in the western part of China which involves the design of an ITP for subsystems such as CCTV, licence plate recognition etc. Last but not least, STEL was also one of the four consortia awarded a tender by LTA (Land Transport Authority of Singapore) to conduct an 18-month system evaluation test for the next-generation electronic road pricing system.

IS deals worth S$28m. In the IS segment, STEL has won a number of contracts worth some S$28m to implement infosecurity devices and solutions for a national infrastructure project in Singapore; implement a security incident and event management system; and also set up a Cyber Security Operations Centre.

Expects no material impact in FY11. As with the earlier STM contract, the latest deals come with relatively long delivery dates, hence they are not expected to have any material impact on the group’s NTA and EPS for FY11. Nevertheless, we note that these orders would bump up its estimated order book to S$11.5b, of which management had previously guided that it would deliver some S$3.0b from Apr to Dec this year. The group had also said it believes to deliver higher revenue and profit-before-tax this year.

Maintain BUY with S$3.57 fair value. As before, we also do not expect the ongoing dispute with Louis Dreyfus Armateurs (LDA) over a vessel contract to have any significant impact on STE as a whole. STM believes that its total liability is capped at 10% of the deal worth S$178m – we also estimate any settlement would result in <5% reduction in the group’s FY11 pre-tax profit (Please see our 14 Jun report for more information). Hence we maintain our BUY rating on the stock with a fair value of S$3.57 (based on 21x FY11F EPS).

ST Electronics wins $58m contracts

ST Engineering’s electronics arm, ST Electronics, has secured contracts worth $58 million for intelligent transportation systems and info-security projects.

Intelligent transportation systems projects account for $30 million.

In Thailand, ST Electronics will implement an automatic fare collection system (AFCS) for the Silom Line extension of Bangkok’s mass transit system.

The fare system will be for stations from Wong Wian Yai to Bang Wa and is scheduled for completion by the end of next year.

In China, ST Electronics will provide consultancy expertise for an integrated transport platform for a major city in the western part of the mainland.

This consultancy will include the design of a platform for subsystems such as CCTV, licence plate recognition, automated incident detection, dynamic messaging and parking guidance, traffic signal controls and enforcement system, as well as control centre and expert systems.

With the integrated transport platform, residents will benefit from the safe, efficient and enhanced intelligent transport system infrastructure.

In Singapore, the company is one of four consortia awarded a tender by the Land Transport Authority to conduct an 18-month system evaluation test for the next generation of electronic road pricing system.

Elsewhere in Asia, ST Electronics will deliver over the next 12 months a number of eco-enabling traffic management improvement projects, including the implementation of a radar and central management system for the purpose of monitoring traffic.

Info-security projects, which account for $28 million of the contract value, include the implementation of info-security devices and solutions for a national infrastructure project as well as a security incident and event management system.

In addition, the company will set up a cyber security operations centre, which will strengthen ST Electronics’ capability in the area of cyber security.

ST Engineering shares closed four cents higher at $2.88 yesterday.

10% cap on Ropax contract claims

Receives claim from LDA. ST Engineering (STE) has just updated that its marine arm – ST Marine (STM) – has received a letter of claim (dated 10 Jun 2011) from the lawyers of Louis Dreyfus Armateurs (LDA) in respect of the shipbuilding contract for the Roll-on/Roll-of Passenger (Ropax) ferry that was contracted in Jul 2007 for around S$179m. LDA is claiming for both liquidated and unliquidated damages resulting from STM’s purported breach of the Ropax contract amounting to around S$4.8m and EUR33.03m, respectively. However, STM has referred the matter to its legal advisers and it intends to dispute the claim as it is of the view that LDA’s purported termination of the Ropax contract is a breach and STM itself has terminated the Ropax contract because of this breach.

No material impact on financials. But in the event that STM is liable, we understand that STM is required to refund the milestone payments made by LDA (amounting to S$129m plus interest); STM also maintains that under the contract, its total liability is capped at 10% of the contract price. As such, STE also does not expect the contract termination to have any material impact on its NTA or EPS for FY11. Meanwhile, we note that the milestone payments (excluding interest and damages) are just 2.2% of STE’s FY10 revenue, and we also understand that the group has been making provisions for this particular vessel since missing the stated delivery date.

Sell or lease vessel when completed. We also understand that the group is going ahead with the completion of this vessel; and this will give STE the option of either reselling it in the secondary market or chartering it out to third party operators. However, as the Ropax is likely to be quite highly customized, we note that there may be a need for STE to refit the vessel to new specifications or face a longer time before it can find a suitable buyer or charterer. But from recent transaction reports from shipbrokers, we understand that the demand for RoRo (Roll-on/Roll-off) vessels remains relatively buoyant.

Maintain BUY. As before, we think it is still early days to assess if STE/STM has to pay damages, hence we hold off adjusting our FY11 estimates. Our worst case scenario could see a <5% impact on FY11F pre-tax profit. We are still positive on the group’s overall prospects, defensive nature and do not believe that this incident will affect its strong payout (around 90% of core earnings) ability; hence we maintain our BUY rating and S$3.57 fair value (21x FY11F EPS).

ST Marine gets letter of claim on Ropax contract

ST Marine intends to dispute Louis Dreyfus Armateurs’ $63.5m claim

ST ENGINEERING’s marine arm ST Marine has received a letter of claim from the lawyers of Louis Dreyfus Armateurs (LDA) for an alleged breach of contract.

In the letter dated June 10, LDA is claiming some $63.5 million – $4.8m for liquidated damages for alleged delivery delay and a sum indicated as about 33.03 million euros ($58.7 million) for unliquidated damages arising from ST Marine’s purported breach of a shipbuilding contract.

‘ST Marine is taking legal advice on the claim and intends to dispute the claim,’ ST Engineering said yesterday.

The bone of contention was a contract for a roll-on/ roll-off passenger ferry (Ropax) worth $179 million (inclusive of variable options) inked in July 2007.

LDA had terminated the contract in March this year, citing a delay in the delivery of the Ropax vessel. It further alleges that even if the vessel is tendered for delivery, there will be deficiency in the deadweight capacity of the Ropax vessel.

The first notice of termination was issued by LDA on March 17. In a second notice of termination on March 24, LDA called on the refund guarantees, which require the milestone payments paid to ST Marine amounting to $129 million plus interest to be refunded.

‘As stated in the previous announcement on 24 March 2011, ST Marine is of the view that LDA’s purported termination of the Ropax contract is a breach and ST Marine itself has terminated the Ropax contract on the basis of LDA’s breach and accordingly has reserved all its rights in the matter,’ ST Engineering said yesterday.

ST Marine also reiterated its position that if liable, its total liability under the terms of the Ropax contract is capped at 10 per cent of the contract price. Hence, no material impact is expected on the consolidated NTA per share and EPS of ST Engineering for the current financial year.

ST Marine gets letter of claim on Ropax contract

ST Marine intends to dispute Louis Dreyfus Armateurs’ $63.5m claim

ST ENGINEERING’s marine arm ST Marine has received a letter of claim from the lawyers of Louis Dreyfus Armateurs (LDA) for an alleged breach of contract.

In the letter dated June 10, LDA is claiming some $63.5 million – $4.8m for liquidated damages for alleged delivery delay and a sum indicated as about 33.03 million euros ($58.7 million) for unliquidated damages arising from ST Marine’s purported breach of a shipbuilding contract.

‘ST Marine is taking legal advice on the claim and intends to dispute the claim,’ ST Engineering said yesterday.

The bone of contention was a contract for a roll-on/ roll-off passenger ferry (Ropax) worth $179 million (inclusive of variable options) inked in July 2007.

LDA had terminated the contract in March this year, citing a delay in the delivery of the Ropax vessel. It further alleges that even if the vessel is tendered for delivery, there will be deficiency in the deadweight capacity of the Ropax vessel.

The first notice of termination was issued by LDA on March 17. In a second notice of termination on March 24, LDA called on the refund guarantees, which require the milestone payments paid to ST Marine amounting to $129 million plus interest to be refunded.

‘As stated in the previous announcement on 24 March 2011, ST Marine is of the view that LDA’s purported termination of the Ropax contract is a breach and ST Marine itself has terminated the Ropax contract on the basis of LDA’s breach and accordingly has reserved all its rights in the matter,’ ST Engineering said yesterday.

ST Marine also reiterated its position that if liable, its total liability under the terms of the Ropax contract is capped at 10 per cent of the contract price. Hence, no material impact is expected on the consolidated NTA per share and EPS of ST Engineering for the current financial year.