ST Engineering

Phillip Securities Research on 9 Oct2012

STE recently announced that its US-based subsidiary VT Halter Marine (VTHM) signed a partnership agreement with DCNS to submit a proposal to the Department of Homeland Security for the design and construction of the US Coast Guard's offshore patrol cutter.

STE's press release on the collaboration said that VTHM would be the prime contractor and DCNS, the exclusive subcontractor for the vessel's platform design.

Details disclosed by the US Coast Guard indicated that seven shipyards had expressed interest in this project as of July. Our research suggests that at least four of those shipyards have had business dealings with the US Coast Guard before. Hence, we expect competition for this contract to be stiff. We believe there should be greater clarity on the project when the US Coast Guard awards the initial contracts to three shipyards next year.

We remain positive and expect potential contract wins to catalyse the stock. Despite a significant rally since the start of the year, STE would still yield more than 4 per cent on our estimates.

Pending the release of STE's results early next month, we are keeping our recommendations and estimates unchanged.
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