Singapore Technologies Engineering (STE) recently announced that its electronics arm, ST Electronics, is acquiring 51% equity stake in SP Telecommunications (SPTel) from Singapore Power (SP) for ~S$54m, which will be finalized post-closing, subject to a maximum of S$60m. The transaction will be fully funded by ST Electronics’ internal cash and is expected to close by 2Q17.

SPTel owns, builds and operates communication and infrastructure services in Singapore, and it also owns an extensive network of fibre optic back-haul infrastructure and facilities.

In our view, this proposed acquisition will strengthen ST Electronics capabilities in Info-Communications Technology (ICT) segment, which is in-line with its strategy to drive growth ahead in this area.

We believe this acquisition of ICT-related infrastructure allows ST Electronics to be better poised to provide ICT solutions for enterprise customers, and is also in-line with Singapore’s vision to become a smart nation.

All said, we do not expect this acquisition to have any material impact in the near-term. Hence, keeping our forecasts unchanged for now, maintain HOLD on STE with an unchanged FV estimate of S$3.20. STE is expected to announce its FY16 results on 16 Feb 2017 before trading hours.

Source: OCBC Research - 1 Feb 2017