Singapore Technologies Engineering Ltd Makes a Key Acquisition in SP Telecommunications: Why is it Important?

Singapore Technologies Engineering Ltd (SGX: S63) is an engineering conglomerate with a wide variety of business interests.

As a quick background, ST Engineering organises its business into four main divisions: aerospace, electronics, land systems, and marine. Some divisions may have more potential than others.

In early May, ST Engineering’s electronics arm, ST Electronics, snapped up a controlling stake in SP Telecommunications (SPTel).

The infrastructure advantage

ST Engineering’s chief executive officer, Vincent Chong, talked about the acquisition during the company’s 2017 first quarter earnings presentation:

“On M&A [mergers and acquisitions], we completed a 51% acquisition of SP Telecommunications at a purchase price of $55 million.”

As part of the deal, SP Power, the original owners of SPTel, will retain a 49% stake. Chong explained why the acquisition is strategic to ST Engineering’s information and communication technology (ICT) product offering:

“This acquisition is strategic to our ICT business, as it strengthens our ICT products and service offerings. The acquisition gives us access to an extensive network of fiber optic backhaul infrastructure and facilities, which will enable us to move beyond our traditional strengths and solution and system integrations up to the — and allowing us to climb the ICT value chain to provide connectivity and other bundled ICT services.”

SPTel can be seen as a joint venture between SP Power and ST Engineering, and it is geared towards specific customers. Chong added:

“The JV business will largely be centered on the provision of connectivity services in support of Singapore’s critical information infrastructure for both government as well as enterprise customers.”

Owning the super highway

Ravinder Singh, the president of ST Engineering’s electronics division, delved deeper into the advantage that SPTel offers during ST Engineering’s 2017 first quarter earnings presentation:

“So SPTel essentially is a JV that we have with Sing Power, and the main asset that this JV has is the backbone — backhaul fiber optic network, which in Singapore today the — with — the SPTel JV would have a completely independent fiber network in Singapore.”

The fiber network mentioned above is separate from the one owned and operated by Netlink Trust. Singh stressed on the JV’s key focus:

“And our intent really is to focus on the enterprise customers.

And as you are aware, ST Engineering, ST Electronics, we provide ICT solution to many enterprise and government agencies, including in the transport area, in the security area. And we have — well, noticed that the key part of the Smart Nation drive is actually to have a network that’s able to support the sensors and the systems deployed island-wide. So the SPTel JV will be able to provide the backbone and also provide alternative fiber connectivity, including to critical infrastructure like data centers.

So our focus really is the enterprise market. We are not going into the consumer and household.

We believe that there is significant opportunity there to provide a reliable, robust and also high-bandwidth network in Singapore, especially as you move towards building Smart Nation systems in Singapore.”

From management’s comments above, we can see that ST Engineering is targeting enterprise customers with SPTel. Time will tell if ST Engineering’s approach will bring benefits.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.