5 Things You Should Know About Starburst IPO
INITIAL PUBLIC OFFERING | 11 JULY 2014
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Imagine owning part of a business that economic conditions have the least bearing on. This idea has and always will be one that cannot be resisted. Particularly in the face of uncertainty which is all there is in the equity markets.
Fitting nicely into the recession-proof class is the latest entrant to the Catalist board on the Singapore Exchange – engineering specialist Starburst Holdings Limited (Starburst).
Shares Investment recently met up with Starburst’s management team to understand more about the company’s business.
Recession-Proof Business
Starburst is the go-to company where firearms-training facilities are concerned. Covering the entire supply chain from design to installation phases, Starburst provides anti-ricochet ballistic protection systems for firearm shooting ranges and tactical training mock-ups.
Starburst is the go-to company where firearms-training facilities are concerned. Covering the entire supply chain from design to installation phases, Starburst provides anti-ricochet ballistic protection systems for firearm shooting ranges and tactical training mock-ups.
As part of the company’s integrative approach, Starburst also administer maintenance services to keep such facilities in tip-top conditions.
“Starburst is the natural choice for maintenance services. Following the minimum one-year defect liability period that comes after project completion, clients would tend to extend their maintenance contracts with Starburst,” Edward Lim, Executive Chairman of Starburst, elaborated.
Sales Breakdown
Source: Company Prospectus
As of 9 June 2014, the company’s order book stood at $45.8 million; out of which $19.7 million is derived from firearm shooting ranges and tactical training mock-ups business segments and will be translated into revenue over the next year. The remaining which comes from maintenance services and others segment would translate into revenues over the next one to 19 years.
The company’s clientele include law enforcement, military and security agencies as well as civil authorities, which spans across the Southeast Asia and the Middle East regions.
Product Differentiation
The key differentiation between Starburst and its peers boils down to its specialty – the fit out of a facility with bullet containment systems. This system utilises the company’s proprietary protection materials under the “Searls” trademark, which have been tested for compliance with the relevant safety regulations.
The key differentiation between Starburst and its peers boils down to its specialty – the fit out of a facility with bullet containment systems. This system utilises the company’s proprietary protection materials under the “Searls” trademark, which have been tested for compliance with the relevant safety regulations.
Major Players In The Engineering And Construction Of Training Facilities Industry
Source: Company Prospectus
"Searls" Anti-Ricochet Materials
High Barriers To Entry
Equipped with close to 15 years of track record, Starburst has established itself as a trusted provider, with over 20 facilities completed in both Southeast Asia and the Middle East. In this line, the importance of having the qualifications and experience that meet the requirements of its customers cannot be overstated.
Equipped with close to 15 years of track record, Starburst has established itself as a trusted provider, with over 20 facilities completed in both Southeast Asia and the Middle East. In this line, the importance of having the qualifications and experience that meet the requirements of its customers cannot be overstated.
“Only pre-approved specialists are granted access to the bidding stage. Starburst has been appointed as one of these entities by governments in Southeast Asia and the Middle East,” Jonathan Yap, Managing Director of Starburst, explained.
Apart from government bodies, the company has also been maintaining close business relationships with military training software and equipment suppliers, which are considered competitors of Starburst. Connectivity in the value chain is another critical factor as such links would prove helpful in sales lead generation and referrals.
Considerable Profitability
As mentioned earlier, Starburst is in control of the entire supply chain which is a great position to be in. Managing the whole flow would allow Starburst to monitor on quality and ensure efficient processes.
As mentioned earlier, Starburst is in control of the entire supply chain which is a great position to be in. Managing the whole flow would allow Starburst to monitor on quality and ensure efficient processes.
Such advantages have manifested in the company’s profitability measures. As shown in the chart below, the company has been able to reap a high proportion of its revenue as net profit. The latest fiscal year saw 41.5 percent of revenue flowing down to the company’s bottom line.
Also, net margin has been increasing since FY11 with strong return on assets and return on equity for the past three years at double digits.
Profitability Metrics
Source: Company Prospectus
On the sustainability of its results, the company intends to build up its maintenance segment where contracts are on fixed terms, thereby creating recurring income and clearer earnings visibility for Starburst.
Strategic Positioning
While the need for nations to offer better protection for their assets and territorial integrity is always present, the two geographical areas Starburst is operating in present huge potential.
While the need for nations to offer better protection for their assets and territorial integrity is always present, the two geographical areas Starburst is operating in present huge potential.
Based on McKinsey’s “Southeast Asia: The next growth opportunity in defence” report, Southeast Asia is among the top defence spenders worldwide. As for the Middle East, it is slated to be one of the fastest growing market in terms of defence spending according to IHS Jane’s Annual Defence Budgets Review.
IPO Details
Starburst (40D) was listed on 10 July 2014. 50 million new shares of the company have been offered at $0.31 apiece.
Starburst (40D) was listed on 10 July 2014. 50 million new shares of the company have been offered at $0.31 apiece.
Starburst has earmarked 50.3 percent of the $15.5 million in gross proceeds raised from the initial public offering exercise, for expansion purposes via purchasing land and buildings as well as plants and machinery.
The balance will be utilised as general working capital.
Starburst intends to pay out 20 percent of its net profit, excluding any exceptional and extraordinary income, for this current financial year.
Investment Merits
• Recession-proof business
• Established player with accredited proprietary protection materials
• High barriers to entry; involves close business relationships and specialised know-how
• High profitability
• Low default probability among its clients
• Management team vested interest of 80 percent
• Recession-proof business
• Established player with accredited proprietary protection materials
• High barriers to entry; involves close business relationships and specialised know-how
• High profitability
• Low default probability among its clients
• Management team vested interest of 80 percent
Investment Risks
• Manpower constraints
• Reputational damage
• Additional regulations or revocation of permits and licences
• Manpower constraints
• Reputational damage
• Additional regulations or revocation of permits and licences
SI Research Takeaway
Being in a niche industry armed with a unique business model, Starburst seems set to take the global stage by storm.
Being in a niche industry armed with a unique business model, Starburst seems set to take the global stage by storm.
What’s more, they are choosing their spots after careful considerations so as to grab onto parts of a growing pie and maximise on opportunities.
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