Starburst Holdings - Niche defence play

Integrated defence play
Starburst is one of the few integrated defence plays globally. Since its inception in 1999, it has been building a reputable track record in the fitting out of firearm-training facilities and tactical training mock-ups. It is a beneficiary of the higher defence spending in Southeast Asia and the Middle East. Maintain BUY, TP reduced to S$0.37, as we push back the recognition of contract wins.

New factory to double production capacity
Starburst’s new factory will enable the Group to increase its fabrication efficiency and capacity, and to undertake a higher number as well as larger projects simultaneously.

FY15 affected by delay in contract wins and handover of projects
We now expect Starburst to record a net loss in FY15, mainly due to delays in contract wins and handover of projects. We expect Starburst to gradually improve in FY16F, with the progressive booking of revenue from contracts clinched in FY15. So far, Starburst has clinched S$37.5m worth of contracts and letters of intent for projects and maintenance work. FY17F should be a better year, with the expected award of a few big contracts in the range of S$20m to S$60m each.

Technical Analysis
Daily Chart
Valuation:
Our target price of S$0.37 is based on 11x FY16F PE, which is pegged to 30% discount to peers’ average of 15x forward PE. We believe players in this industry will remain niche as the growth potential is not particularly attractive for new players in this already mature industry. Furthermore, pre-requisites such as specialised technical skills and established track record may deter new entrants.

Key Risks to Our View:
Mainly dependent on project-based non-recurring contracts. Starburst’s business is largely made up of non-recurring contracts, which is dependent on its ability to secure new contracts. (Read Report)

Read Related Report
1) Starburst Holdings - Look ahead for earnings recovery‏ by OCBC Investment Research, published on 16 November 2015

Source : DBS Group Research

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