Brokers’ digest
Price target: UOB Kay Hian “buy” 61 cents
Strong turnaround amid growing military spending
UOB Kay Hian has initiated coverage of Starburst Holdings on its strong turnaround with its niche as a specialised designer and builder of shooting ranges. In a Nov 5 note, UOB Kay Hian analysts Llelleythan Tan and John Cheong rate the company a “buy” with a target price of 61 cents.
They note that since late 2019, Starburst has won several large contracts and achieved a record orderbook of close to $60 million as of 3Q2020. This has helped it to turn around and make profit of $4 million in 9M2020. “As such, we expect it to achieve a growth of $8 million profit for 2020 before doubling to $17 million in 2021. We see ample opportunities for more new project wins,” the analysts note, adding that an order book of $100 million is seen by end-2020.
The UOB Kay Hian analysts have also flagged that Starburst enjoys high barriers of entry, which result in comfortable margins. “In Singapore, the company has only two foreign competitors — Cubic Corp and Meggitt. Starburst is able to generate an impressive net margin of around 35% for new projects and 50% for maintenance projects,” say the analysts.
“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,” they add. —