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Excerpts from UOB KH report
Analysts: Llelleythan Tan & John Cheong
As such, we expect it to achieve growth of S$8m profit for 2020 before doubling to S$17m in 2021. We see ample opportunities for more new project wins. We initiate coverage with BUY and PE-based target price of S$0.61. |
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• Market leader in design and engineering of firearms-training facilities. Starburst Holdings has a track record of close to 20 years as a specialist in the niche business of design, fabrication, installation and maintenance of anti-ricochet ballistic protection systems for firearms shooting ranges and tactical training mock-ups in Southeast Asia and the Middle East.
It is one of the few companies with a track record and experience that meet the requirements of government bodies in Southeast Asia andthe Middle East.
• High barriers of entry translated into high-margin business. Starburst operates in an industry that requires a long-standing track record and niche expertise as it involves safety measures to mitigate ricochet during the firing of live rounds.
In Singapore, the company has only two foreign competitors - Cubic Corporation and Meggitt.
Starburst is able to generate an impressive net margin of around 35% for new projects and 50% for maintenance projects. It has also been building up its maintenance contracts as every greenfield project requires regular maintenance.
Starburst has an advantage over the other maintenance contractors as they lack the capabilities to maintain facilities without compromising on safety.
• Strong turnaround in 2020 and high growth in 2021, backed by strong orderbook. Since late-19, Starburst has won several large contracts and achieved a record orderbook of close to S$60m as of 3Q20.
This has helped it to turnaround into profitability of S$4m in 9M20.
Meanwhile, it is set to achieve S$8m and S$17m profits for 2020-21 respectively.
To recap, Starburst has been in a loss-making/barely-profitable position in the last five years due to low order wins.
 "We believe Starburst’s orderbook can grow to around S$100m by end-20 as there are ample opportunities from contracts in Southeast Asia, the Middle East and, potentially, Australia."-- Llelleythan Tan (photo) & John Cheong |
• Positive industry outlook on growing military spending. Military spending has consistently grown in Southeast Asia and the Middle East over the last two decades due to growing tensions and neighbouring threat in the regions.
According to Stockholm International Peace Research Institute (SIPRI), military spending in Southeast Asia and the Middle East has increased at a 10-year CAGR of 3.5% and 6.1% respectively.
Larger defence budgets will increase the possibility of the construction of training facilities and mock-ups.
| • Initiate coverage with BUY and PE-based target price of S$0.61, based on a 10.5x2021F PE, pegged to a 40% discount average peer mean of 2021F PE. Based on its strong orderbook of close to S$60m, Starburst is set to more than double its profit in 2021 after a strong turnaround in 2020. It is currently trading only at 5.8x 2021F PE. |
Full report here.
