Heading out to the highway
? TransCore clinched US$1.07bn (S$1.47bn) in tolling system contracts in the US, involving the installation of modern tolling solutions across New Jersey.
? The design and installation phase will take place over the next 3-4 years and operations and maintenance will last for 8 years.
? Reiterate Add at an unchanged TP of S$3.99 based on blended valuations.We leave our EPS estimates unchanged for now as we await 3Q22 results.
US$1.07bn (S$1.47bn) of electronic tolling system contracts
? ST Engineering (STE)’s wholly owned subsidiary TransCore has been awarded US$1.07bn (S$1.47bn) in turnkey tolling system contracts in the US. The first contract is US$941m (S$1.25bn) with the New Jersey Turnpike Authority (NJTA), which includes the design, installation, operation, and maintenance of tolling systems on the 241km Garden State Parkway and 209km New Jersey Turnpike, two of the busiest toll roads in the US for 10 years. We understand that the design and installation phase could take place over the next 3-4 years, with operations and maintenance to follow.
? The second contract is US$159.3m (S$218.2m) with the South Jersey Transportation Authority (SJTA) which covers the design, installation, operation, and maintenance of an All-Electronic Tolling (AET) system on the 72km Atlantic City Expressway for 12 years. We understand that the project implementation is worth US$41.8m, as well as US$117.5m to operate and maintain the cashless toll systems from year 3 onwards.
? According to STE, the Infinity Digital Lane System is one of the most advanced toll collection systems available in the US currently, allowing automatic identification and recognition of high-volume traffic.
Order book boosted to a new high of S$24.6bn
? Assuming a 30% project implementation phase, we estimate the contracts will add c. S$110m p.a. in revenue to STE over the next 3-4 years, and thereafter S$120m p.a. till 2032-2034F. With the new contracts, STE’s order book currently stands at a record high of S$24.6bn (vs. end-Sep: S$23.1bn).
? We view the order wins positively as they demonstrate confidence in TransCore’s tolling solutions from authoritative bodies. We are also positive on TransCore’s future order momentum, given 1) its leading market share in the US electronic toll collection (ETC) industry, 2) the recovery in domestic traffic volumes, and 3) further scope for the rollout of ETC solutions in the US given the current reliance on manned booths.
? In addition, the potential rollout of congestion pricing solutions in New York City in 2023 could spur further contract wins, given TransCore’s expertise in this field.
Reiterate Add at an unchanged TP of S$3.99
? We reiterate our Add call at an unchanged TP of S$3.99, still based on blended valuations (20x CY23F EPS, DCF, 4% dividend yield). Re-rating catalysts: lower yield on newly issued bonds and margin recovery. Downside risks: margin erosion from rising cost pressures, recessionary risks, higher-than-expected financing costs
