SINGAPORE Technologies Engineering (ST Engineering) subsidiary TransCore has been awarded turnkey tolling system contracts in the US worth a total of S$1.47 billion.

 

The technology, defence and engineering group said in an announcement on Tuesday (Nov 15) that the contracts with the New Jersey Turnpike Authority (NJTA) and the South Jersey Transportation Authority (SJTA) will modernise the tolling infrastructure in New Jersey.

 

The NJTA project includes the design, installation, operation and maintenance of tolling systems on the 241 km Garden State Parkway and 209 km New Jersey Turnpike &ndash two of the busiest toll roads in the US &ndash for 10 years. 

 

The SJTA project covers the design, installation, operation and maintenance of an All-Electronic Tolling (AET) system on the 72 km Atlantic City Expressway for 12 years. 

 

ST Engineering said TransCore will replace the existing tolling infrastructure with its own flagship toll collection system that integrates automatic vehicle identification and vehicle classification.

 

TransCore&rsquo s system also integrates video capture and recognition systems that automatically and accurately capture transactions in high-volume traffic across a wide variety of traffic speeds and patterns, it added.

 

In addition, TransCore offers a digital video audit system that provides real-time, end-to-end revenue traceability and auditability.

 

ST Engineering said the contracts are not expected to have a material impact on its net tangible assets per share and earnings per share for the current financial year ending December.

SINGAPORE Technologies Engineering : S63 +0.9% (ST Engineering) has proposed divesting two loss-making marine subsidiaries in the United States, a move that has attracted nods from some analysts.

 

ST Engineering Halter Marine and Offshore and VT Halter Marine will be sold to the United States&rsquo largest privately owned and operated shipbuilder Bollinger Shipyards Lockport for US$15 million.

 

The divestment proposal was made after a &ldquo thorough review&rdquo by ST Engineering, the Singapore mainboard-listed heavyweight said in a regulatory filing on Monday (Nov 7). The business units had incurred a combined pre-tax net loss of US$256 million in the past five years, with an annual pre-tax net loss ranging from US$40 million to US$60 million.

 

The deal would mark a full exit from the marine business in the US, which ST Engineering said has been challenging.

 

The transaction, on a cash-free, debt-free basis, will result in the company booking a non-cash loss on disposal of about S$13.3 million. Analysts expect this to have an impact of 2-3 per cent on forecast earnings for FY2022.

 

These subsidiaries collectively had an order book valued at S$1.9 billion as at end-September.

 

Despite the hit to earnings and the loss of orders, analysts appear to view the deal favourably.

 

Analysts at DBS and CGS-CIMB noted that the US marine subsidiaries had been a drag on ST Engineering&rsquo s profitability.

 

In a research note to clients, DBS wrote that the US marine business has been beset by frequent cost overruns and execution challenges in spite of its &ldquo reasonably robust order book&rdquo .

 

DBS had been ascribing negative margins to the shipbuilding business in its forecast horizon, because of the learning costs involved in an ice-breaker project for the US Coast Guard.

 

With the proposed sale, DBS wrote that it will likely review those margins upwards. It noted how ST Engineering had previously disposed of its loss-making construction vehicles businesses in the US and elsewhere, and subsequently reported better profitability.

 

CGS-CIMB, meanwhile, raised its forecast for ST Engineering&rsquo s earnings for FY2023-24. It also raised its target price to S$3.99, from S$3.95, to account for the reduced earnings drag.

 

ST Engineering reported an 11 per cent decline in H1 FY2022 earnings before interest and taxes from its defence and public security division, which the US marine business is a part of, amid reduced state aid.

 

This divestment proposal is a stark reminder that investors must pay less attention to the value of order books that companies disclose, and more attention to how much of that revenue translate into profits at the end of the day.

 

And more companies would do well to follow in ST Engineering&rsquo s footsteps, and conduct regular portfolio reviews and rationalisation to focus on businesses that are strategic and yield higher returns. This is especially crucial with interest rates rising, as a higher yield is now required to cover a rising risk-free rate.

 

DEFENCE and engineering group ST Engineering : S63 +1.2% (STE) is proposing to divest all of its US marine subsidiaries, namely VT Halter Marine and ST Engineering Halter Marine and Offshore (STEHMO), to Bollinger Shipyards Lockport for US$15 million.

 

The transaction will be on a cash-free, debt-free basis and subject to net adjustments to working capital, if any, post-closing.

 

It is expected to result in a non-cash loss on disposal of about S$13.3 million.

 

STE may also receive post-closing earnout payments of up to some USS$10.3 million should Halter Marine be awarded certain future shipbuilding contracts, provided that the contracts meet the requisite operating profit margins.

 

On Monday (Nov 7), the group said its proposed divestment comes as part of its ongoing portfolio review and rationalisation.

 

After conducting a &ldquo thorough review&rdquo of its two US marine subsidiaries, the group found that the business units incurred a combined net loss before tax of US$256 million in five years spanning 2017 to 2021, with an annual net loss before tax ranging from US$40 million to US$60 million.

 

This has resulted in the group engaging Macquarie Capital as its financial adviser to conduct an auction process involving both strategic investors and private equity funds.

 

Bollinger was determined as the most suitable purchaser given its &ldquo good reputation and strong track record in undertaking US Navy and US Coast Guard programmes&rdquo , said STE.

 

Some 20 years ago, STE and Bollinger were at loggerheads over the ownership of Halter Marine &ndash which was then a division of Friede Goldman Halter before the troubled offshore equipment manufacturer filed for bankruptcy and sold off its assets.

 

In July 2002, STE emerged victorious at an auction with its winning US$66 million bid for Halter Marine. This was met with objections by Bollinger, who previously made a lower US$48 million offer for the company in May before it was put up for auction.

 

Citing security concerns in the wake of the Sep 11 attacks, Bollinger argued it would be illegal for a foreign company to purchase the assets of Halter Marine, although the transfer of Halter Marine&rsquo s assets to STE eventually went through.

 

The former adversaries are now on the same side.

 

&ldquo As a designer and builder of high-performance vessels, the group believes that Bollinger has the capability and resources to add value to both businesses&rsquo programmes, including the Polar Security Cutter,&rdquo said STE in its latest Nov 7 statement.

 

Highlighting the &ldquo challenges and losses&rdquo of operating the two US shipbuilding and ship/rig repair businesses in recent years, STE&rsquo s group president and chief executive Vincent Chong said the decision for STE to exit the US marine business was a &ldquo difficult&rdquo one.

 

&ldquo We believe that this proposed transaction represents a favourable outcome for ST Engineering shareholders, Halter Marine and STEHMO as well as their stakeholders,&rdquo commented Chong.

 

Despite the proposed divestment, STE highlights the US as a key market for the group and says it will continue to invest in its other businesses in the US. This includes focusing on its existing defence business, and expanding its commercial businesses such as in commercial aerospace and smart mobility.

 

The group adds that its marine business in Singapore &ldquo continues to be core and strategic&rdquo .

 

CGS-CIMB is positive on news of the proposed disposal, and sees a potential margin uplift for STE in FY2023-2024 as a result.

 

The research house on Monday raised its price target on the stock to S$3.99 from S$3.95 previously while maintaining its &ldquo add&rdquo call on the stock, as it factors in 4 to 5 per cent higher earnings-per-share estimates on the back of higher defence segment operating profit margin (OPM).

 

While CGS-CIMB lowered its FY2023 to FY2024 marine revenue projections due to the disposal, it has raised the defence segment&rsquo s OPM by 12 to 12.3 per cent, versus the previous 10.5 to 10.8 per cent, after factoring in a &ldquo reduced earnings drag&rdquo in the absence of the loss-making US marine businesses.

 

Its analysts said they view the divestment favourably given that the marine businesses have been loss-making for STE since FY2017. They also noted that the group&rsquo s order book remains at a record high of S$23.1 billion as at end-September 2022 even after accounting for a S$1.9 billion order book reduction post its exit from the US marine business.