What Investors Need To Know About Starburst Holdings’ Initial Public Offering

Initial Public Offerings, or IPOs,  seem to be heating up again for Singapore’s share market with Accordia Golf Trust and Frasers Hospitality Trust filing preliminary listing prospectuses with the Monetary Authority of Singapore late last month.

But before those two will become publicly-listed entities, Starburst Holdings would become one first with its listing on the Catalist exchange next week. There’s no doubt this is a small listing as the company plans to issue only 50 million shares at S$0.31 each to raise around S$15.5 million in gross proceeds. But, the company has a rather unique business model that might be worth a deeper look.

Starburst Holdings is an engineering group that focuses on the design and engineering of defence training facilities.

With a track record of 15 years, the company has three main business segments. Firstly, it designs and constructs firearm shooting ranges; this segment is Starburst Holdings’ main business and takes up 69.6% of the company’s total revenue in 2013. Secondly, it is also able to design and fabricate tactical training mock-ups which include simulations of scenarios such as search and rescues, counter terrorism missions, and even sniper operations; this is more of a project-based business and it contributed 16.4% to Starburst Holdings’ revenue in 2013. Lastly, the company provides maintenance and repair services for all types of defence training facilities and this arm accounts for the rest of the company’s revenue (14%).

With revenue of just S$21 million in 2013, Starburst Holdings is tiny in size when compared to another local-based defence-related outfit, Singapore Technologies Engineering (SGX: S63); approximately 38% of the latter’s total revenue of S$6.63 billion in 2013 came from defence-related work. But, Starburst Holdings hasn’t allowed its small size to be a hindrance to both its profit margins and profit growth: From 2011 to 2013, its net income margin has grown from 26.4% to 41.5%; over the same period, its profit has jumped by almost 50% from S$6 million to S$8.7 million.

That impressive growth rate and margin happened for a reason: Starburst Holdings believes it has a competitive edge in its niche market as it one of the few companies in its space that has the capabilities to operate across Southeast Asia and the Middle East.

Going forward, the company plans to focus more on the Middle East (the region accounted for 31.6% of total revenue in 2013) and intends to use about half of its proceeds from the IPO for expansion-related capital expenditure. About 36.7% of the proceeds will be used for general expenses while the rest will be used to pay for listing-related expenses.

Foolish Summary

At its offer price of S$0.31 per share, the company is valued at S$77.5 million in its entirety and would be selling for only 8.9 times its earnings for 2013. By way of comparison, the general market, as represented by the Straits Times Index (SGX: ^STI), has a PE ratio of close to 14 at the index’s current level of 3,271 points.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.