Here's why ST Engineering's latest deal won't rake in much cash

It would be vying against 6 shipyards for a project.

According to Phillip Securities, STE recently announced that their US based subsidiary, VT Halter Marine (VTHM), signed a partnership agreement with DCNS to submit a proposal to the Department of Homeland Security (DHS) for the design and construction of the US Coast Guard (USCG) Offshore Patrol Cutter (OPC).

Here's more from Phillip Securities:

According to STE’s press release on the collaboration, VTHM would be the prime contractor and DCNS would be the exclusive subcontractor for the OPC platform design.

According to the details disclosed by the USCG, there were 7 shipyards that had expressed interest in this project as of July 2012. Our research suggests that at least four of the shipyards have a history of business dealings with the
USCG.

Hence, we expect competition for this contract to be stiff. We believe that there should be greater clarity on the
project when the USCG awards the initial contracts to three shipyards in 2013.

STE’s revenue streams from its defence business had always been a consistent source of income and are usually
less volatile than the commercial ones. Details for STE’s defence related contracts are very limited.

However, based on major contracts clinched between FY06 and FY09, we estimate that c.28% of defence revenue for the past 3yrs could be attributed to defence contracts for overseas customers.

Being a key contractor to Singapore’s defence industry, we expect majority of the balance to be due to contracts for Singapore’s military. Going forward, VTHM’s Fast Missile Craft project for the Egyptian Navy and ST Marine’s PV project for the Royal Oman Navy would provide defence revenue visibility for its overseas customers till FY16E.

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