CGS-CIMB Research analyst Lim Siew Khee has maintained her ‘add’ rating with an unchanged target price for ST Engineering after the company increased its bid to acquire Cubic Corporation from US$76 ($102.43) per share to US$78 per share.

If successful, ST Engineering would pay US$2.48 billion to acquire Cubic Corp. Lim expects the final outcome of the bidding war, which began in September 2020, to be finalised over the next few days.

“We hope this is the last bid ST Engineering offers as a prolonged pricing war could be a negative overhang on share price,” she says.

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The latest increased bid comes after competitor Veritas Capital revised it bid from US$70 to US$72 per share. Lim notes that the new offer submitted by ST Engineering  represents an 8.3% premium to Veritas’ latest bid, compared to an 8.6% premium on the previous offer.

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She also adds that ST Engineering’s previous offer at US$76 per share represents a next 12 months EV/EBITDA multiple of 17 times, compares to a trailing four-year average of 12.7 times.

Preliminary valuation for Cubic Mission & Performance Solutions is in the range of US$850 million to US$950 million. This means ST Engineering will pay between US$1.5 billion to US$1.6 billion for Cubic Transportation Systems, or 12.9 - 15 times FY2020 ended September EV/EBITDA, in line with ST Engineering’s EV/EBITDA.

Lim notes that ST Engineering stated it will fund the acquisition fully by debt, but she doesn’t rule out the possibility of equity fund raising in the future if there is a need to pare down gearing. 

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“This deal could raise ST Engineering’s gearing to 1.2 -1.3 times, based on our estimates,” she adds.

As at 3.29pm, shares in ST Engineering were up 1 cent or 0.26% higher at $3.91