They also highlight how the company has consistently rewarded shareholders with dividends in FY14-16, even during the loss-making years.
(See also: Starburst turns in profitable 1Q with $0.4 mil in earnings)
“Armed with a 16-year track record and strong technical know-how, the company operates in a niche area of the highly opaque, strictly regulated defence industry, which elevates the barriers to entry for new players. Starburst sees itself as a proxy to higher military spending in Southeast Asia and Middle East, underpinned by rising tensions and continual terrorism threats,” observe the analysts.
“Disposal of its old factory in 1Q17 for $7 million, together with the 2016 warrants issuance, could further strengthen its cash position for larger-scale projects and M&A opportunities, according to management.”
While acknowledging that the company’s earnings tend to fluctuate due to the ad-hoc nature of its projects and varying intensity at each phase, Starburst’s management intends to build up recurring income via more maintenance service contracts.
This includes – as recently reported in the media – the joint development of military training areas and facilities between Singapore and Australia, as well as the 10-year, $900 million development of the Singapore government’s upcoming SAFTI City, a simulation environment to be built in place of the existing SAFTI training area.
“The company reckons it is well-placed to secure both contracts, with 10-20% possible share of each contract value,” note Ngoh and Tng.
“Starburst also announced a strategic partnership with Swiss Securitas Group, a global security consultant and solutions provider. This partnership involves Swiss Securitas Group taking a 5.1% equity stake in the listed entity, while Starburst will acquire its subsidiary, Swiss Securitas Asia, for S$0.6m in exchange. Management sees this as synergistic to its service offering, as well as providing a gateway to the European market,” they add.
As at 11.23am, shares of Starburst are trading 1 cent higher at 36 cents.
