Aug. 25 (Bloomberg) -- Starburst Holdings Ltd., a Singaporean builder of shooting ranges, expects revenue to rise fivefold as Middle East defense spending surges following the Arab Spring uprisings.
The company is pursuing as many as six contracts to provide firearms-training facilities to countries including the United Arab Emirates, Executive Chairman Edward Lim said. Projects in the region may drive sales in five to six years to S$100 million ($80 million) from S$21 million in 2013, he said. Starburst is Singapore’s best-performing stock since listing shares on July 10, soaring 145 percent. The benchmark Straits Times Index added 1.7 percent in that span.
“After the Arab Spring, countries in the Middle East are starting the implementation of compulsory military services,” Lim said in an interview on Aug. 21. “They need to build new shooting ranges to accommodate the increase in the military personnel.”
No region has seen a faster increase in defense spending than the Middle East, with Saudi Arabia boosting its military and security budget 21 percent to $81 billion in 2014 from a year earlier, according to IHS Jane’s. Revolts from late 2010 to 2012 driven by the world’s highest youth unemployment rate toppled leaders including Egypt’s Hosni Mubarak, Libya’s Muammar Qaddafi and Tunisia’s Zine El Abidine Ben Ali.
The UAE is mandating military service for men aged 18-30, with participation optional for women, according to the state-run news agency. Starburst is also seeking a contract with Qatar, which is beefing up security as it prepares to host the 2022 World Cup soccer tournament. The stock climbed 2.7 to a record high of 76 Singapore cents at the close, capping a 19 percent three-day advance.
“Starburst has a very interesting story,” Ryan Huang, a strategist at IG Ltd. in Singapore, said by phone. “They’ve got their spotlight in the Middle East and there’s a lot of optimism there. They’re in a very niche market, with high barriers to entry. They also have high profit margins.”
Contributions from the region will account for 50 percent of revenue in the next few years from 31 percent last year, Lim said. Starburst, which has built almost 20 shooting ranges in Southeast Asia and the Middle East in the past 15 years, plans to use the net S$13.5 million raised from its IPO to double the size of its fabrication facility in Singapore.
Starburst’s net income is likely to almost double to S$16.1 million this year and climb to S$28.4 million in 2015, supported by its strong orderbook, Kenneth Ng and Justin Chiam at CIMB Group Holdings Bhd. wrote in a note dated Aug. 20.
The company may also extend gains as the shares are trading at a discount to its global peers, the analysts said. The stock was valued at 17.4 times historic earnings at the close, compared with a multiple of 36.5 at Cubic Corp., a U.S. supplier of combat training systems, according to data compiled by Bloomberg.
“Order wins in Qatar, UAE and Kuwait are possible, but the big upside is potential work in Saudi Arabia,” according to CIMB. The kingdom’s defense budget has tripled in 10 years as conflicts flare in Iraq and Syria, with al-Qaeda offshoot the Islamic State posing the latest threat. Saudi Arabia is also guarding against religious extremists within its own borders.
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