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A Global War on Terror Might Benefit These Companies

After more than 13 years have passed since the terrorist attack on the World Trade Center in New York City took place, it seems that the threat of terrorism is still going strong in many corners around the world.

Recently, Singapore became the first Southeast Asian nation to join a U.S.-led coalition  to contain the threats posed by Islamic State in the Middle East. The terrorist group, which now controls major parts of Iraq and Syria, has been actively recruiting new members in the Southeast Asian region through the use of social media and the internet.

According to Bloomberg, “[a] missing airplane and a rise in piracy attacks off the coast of Singapore” has also resulted in a recent decision by the government to start deploying an aerostat, an unmanned aerial surveillance airship, to boost the country’s surveillance capabilities.

All these are a reminder for everyone that the freedom we enjoy here comes at a cost. And as the need for more protection against external threats to many countries rise, companies that belong to the defence industry might see strong demand for its products and services.

In particular, Singapore’s share market is home to two defence-related companies: Starburst Holdings Ltd (SGX: 40D) and Singapore Technologies Engineering Ltd (SGX: S63). Starburst Holdings is a newly-listed firm that focuses on designing training facilities in the region. Elsewhere, ST Engineering is an integrated engineering company which manufactures and supplies military communications systems, weapons, and other defence vehicles; roughly 38% of ST Engineering’s revenue in 2013 came from defence-related work. Both companies are serving multiple clients around the region.

At its current price of S$0.595, Starburst Holdings is trading at 14 times its trailing earnings and has a market capitalisation of S$150 million.  Meanwhile, ST Engineering is a much bigger company with a market capitalization of S$11.7 billion. It is also more richly priced with a trailing price/earnings (PE) ratio of 20.5 at its current price of S$3.76 per share.

Foolish Summary

With the growing threat of terrorism, the defence budgets of countries in the region might also be revised upwards. If that happens, we might see stronger demand for services and products from companies such as Starburst Holdings and ST Engineering.

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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 writer Stanley Lim doesn’t own shares in any companies mentioned.