© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, ladies and gentlemen. Welcome to ST Engineering's First Quarter 2019 Results Briefing. To begin today's briefing, Mr. Cedric Foo, Group CFO, will present the group's performance for the financial period ended 31st March 2019. Following that, Mr. Ng Sing Chan, President of the Marine sector, will share more about the recent contract win, the Polar Security Cutter program. Without further delay, I'll hand over to Cedric. Cedric, please?
Yes. Thank you, Sylvia. A very good morning to all who are here at ST Engineering and also those who are joining us through webcast. For the group results of first Q 2019, we are pleased to announce that it is a good set of results. I refer you to the Slide #4. Revenue increased by 5% and stood at $1.7 billion. EBIT improved by 16% year-on-year. PBT improved by 11%, and net profit also 11% and stood at $131.1 million. The order book as of end March was $14.1 billion. This is a high number, and about $4.2 billion of this will be delivered in the remaining months of 2019. Next slide. Group revenue breakdown by sector. Aerospace has higher revenue from CERO and EMS business, and it is offset slightly by AMM business. But overall, it recorded a 4% increase in revenue. Electronics had a very strong quarter back in 1 quarter 2018. So at that time, compared to first quarter 2017, the revenue growth was a very fast clip of 22%. So if you like, the $605 million is an exceptional figure compared to first quarter 2017 of about $500 million or $496 million. So therefore, I think if you look in that context, 1Q 2019 of $563 million, though a drop from 1Q '18, is still a good long-term trend line. For Land Systems, we have higher revenue from all 3 business groups; and Marine, slightly lower revenue; but for Others, higher revenue from [indiscernible]. And as a group, as I said before, 5% improvement in revenue. This is the breakdown by sectors. Aero has the largest share of revenue, 36%; Electronics growing very fast at 32%; Land, 22%; and Marine, 9%. Our defense-commercial split is 30%-70%. By geography, location of customers, Asia constituted the largest at 61%; the United States at 20%; Europe at 12%; and others, 7%. PBT at the group level increased by 11%. Aerospace was flat; Electronics, up by 8% largely due to favorable sales mix; and Land Systems, up by 5% and in line with the higher revenue. Marine was up quite a bit, 56%, and due mainly to the improved performance from U.S. Marine operations. Others was somewhat flat but lower PBT loss. As a group, 11% up. Group net profit also increased by 11%, and the breakdown are as follows: Aerospace increased by 6%. This is higher than the PBT increase, and this is due to a change in taxable income mix. For Land Systems, it's down and this is due to the absence of a favorable tax finalization adjustment which we had in 2018 first Q but we did not have in 2019 first Q. The Marine net profit is up, and this is also due to better U.S. operations and lower tax credit due to lower losses. The next slide talks about group margins. On an overall basis, the group margin for 1Q '19 is better than 1Q '18. The blue and black bars represent 1Q '19, and the yellow ones represent 1Q '18. On a sector basis, Aerospace PBT margin is slightly lower due to unfavorable sales mix. And for Land Systems, the lower PBT margin was also due to unfavorable sales mix especially from the Auto and M&W business groups. Next, on the balance sheet. Total equity and liability increased to $7.98 billion from $7.57 billion a year ago. I want to highlight the right-of-use assets, the $428 million on the third row. This is as a result of the implementation of SFRS 16 where leases are capitalized on balance sheet. And most of our leases are in land and buildings, and they cut across all sectors. Next, on statement of cash flow. We have lower cash flow from operating activities even though our net profit is higher, and this is largely due to a change in working capital movement. Basically, we have lower trade payables. In terms of investing, it stood -- it's more or less the same as first quarter 2018 at $50 million. And in terms of financing activities, we have repaid some bank loans and also bought some treasury shares. The next 4 slides I will go into the sector performance. Some of the comments I've already made, so I will make this quite short. For revenue in Aerospace, up 4%. PBT is up -- is flat, and net profit is up 6%. In terms of PBT, the percentage increase is lower than the revenue increase, and this is largely due to unfavorable sales mix as well as the absence of a negative impact due to portfolio rationalization in 1Q 2019, the absence of it. In Electronics, the revenue is up 7% -- sorry, is down 7%. And as I said before, this was due to a very strong 1Q '18. PBT is up 8% due to favorable sales mix and partially offset by higher operating expense and lower other income, and net profit is up 8%. For Land Systems, revenue is up from all business groups. PBT did not rise as fast as revenue and largely due to an unfavorable sales mix and higher OpEx incurred in the robotics area. I think these are investments for the autonomous vehicle and robotics. Net profit is down slightly due to the absence of a favorable tax adjustment which we enjoyed in 1Q '18 and not in 1Q '19. For Marine, revenue is somewhat flat. PBT is up some $5.3 million or 56% and largely due to better performance in the U.S. shipbuilding sector. And net profit is up $3.3 million or 38%. So finally, I leave you with the President and CEO's message. By and large, we had a good start for the year. And on the M&A front, as you have read, we have agreed to acquire Newtec, which is a high-tech satellite communications industry. And it will help us to enhance the connectivity horizontal of our Smart City strategy. So over and above that, I think post 1Q '19, we have also announced the completion of the MRAS acquisition. So that's going on well, and we also announced the award by the U.S. Navy on behalf of the U.S. Coast Guard for the polar ice cutter program. And I would now like to invite Sing Chan, our President from Marine, to say a little bit about the polar icebreaker which is a significant contract win. Sing Chan, please?
Good morning. Let me, in the next couple of minutes, take you through the highlights of the recent award of 1 plus 2 Polar Security Cutter from the U.S. Department of Navy. The U.S. Coast Guard Polar Security Cutter, in short PSC, is a multiyear program with up to 3 multi-mission PSCs to recapitalize the USCG, the U.S. Coast Guard, fleet of heavy icebreakers. VT Halter Marine, our U.S. Marine unit, was awarded $1 billion for what we call contract line item 1 and 2, which consists of the procurement of the long lead items as well as the basic detail and production engineering and the construction of PSC 1. As you have read in the press release, the contract comes with options for 2 more PSCs, and the cumulative value is SGD 2.6 billion. PSC #1 is scheduled for delivery in 2024. Second and third PSC will be delivered in 2025 and 2027, respectively, if the options are exercised. Now the PSC is a multi-mission vessel. As you can see on the screen, the key features and capabilities are highlighted. So besides icebreaking capability, it will have good seakeeping characteristics. The operating range is -- we have built in additional margins for the operating range. It's got flight operations. It's got a large working space at the aft of the ship for multi-mission capabilities. It is based on a proven design, and we had several iterations to arrive at the final design before the submission of the technical and price proposal to the U.S. Department of Navy in October 2018. Now just to the very quick sort of history. In February 2017, we were one of the 5 to be awarded design studies, and it was an 18-month journey going to, as I mentioned earlier, several iterations. In fact, we have gone through 6 spirals and just as many tank tests before we arrived at this final design. So as you all know, contract was awarded in -- on the 23rd of April 2019. Are we ready to deliver the PSC? Yes, we are. In 2017, we acquired the additional assets in Pascagoula on land adjacent to our [ then current ] VT Halter Marine shipyard. So we have additional capacity to be able to meet the demands of this particular program. It will also provide additional [indiscernible] flexibility in the resource deployment between the 2 yards. We have a huge yard infrastructure, assembly space. We've got necessary launchway. We will be investing in improving the yard infrastructure to be able to launch and berth these PSCs. As I mentioned earlier, we have done rigorous reviews before construction, so this design is based on what we call the mature Polarstern II as the parent design. The Polarstern II, just for your information, I think if you surf the net, you will find out more about this vessel. It's completed more or less the design process and construction. As far as we know, it has been awarded to the German shipyard, Lloyd Werft. As I mentioned earlier, we're -- in our design and in our submission, we have built in some margins just to give you some example. For example, the requirement is that this icebreaker or this Polar Security Cutter is only required to build -- to break 6 feet of ice with margin's to [ build ] ice thickness greater than 6 feet. We also have got reserve in engine power redundancy built in as well. On the team to manage this complex project, we have done projects not exactly the same type. But in terms of complexity, we have also have got track record in such capability. Just maybe a couple of months ago, we were actually rightsizing the shipyard. But now because of this win, we have to increase our workforce, and we are working very hard. And we are very confident of being able to ramp up the workforce, the engineers, production workers included, to undertake this program. Now on the schedule. We had 18 months of the pre-award design studies. We're going to have another 18 months of design studies. So there will be several milestones before we arrive at a stage where we say we are ready to start production. So -- and the first vessel will start construction in 2021 and is expected to be delivered in 2024 second half. And the second and third, as I mentioned earlier, they will be expected -- expected delivery in 2025, 2027, respectively. So between each vessel, you'll see an interval of about 1 year 4 months. So with that, I end my presentation. So I am happy to take any questions during the Q&A session. Thank you.
Thank you, Sing Chan. Can I invite the rest of the management team on stage for the Q&A session, please? Let me do a quick introduction of the team. From your left, Mr. Lim Serh Ghee, representing Aerospace; Sing Chan from Marine sector; Mr. Vincent Chong, President and CEO of ST Engineering; Mr. Ravinder Singh from Electronics; Dr. Lee Shiang Long, representing Land Systems; and Cedric. With that, I'll hand over to Mr. Vincent Chong. Vincent, please?
Good morning to all of you here with us at ST Engineering hub and to those of you who are joining us via webcast. You have heard from Cedric's presentation that the group achieved a 5% increase in revenue and that both PBT and net profit rose 11% year-on-year. At the business sector level, Aerospace posted 4% and 6% year-on-year increase in revenue and net profit. Revenue for Electronics was down 7% for the -- from the first quarter of 2018, which, at that time, was a very strong quarter in 20 -- first quarter 2018 with 22% year-on-year growth then. But then if you take the difference between these numbers, 2019 first quarter is still a very strong quarter for Electronics. Notwithstanding the lower revenue, its net profit was up 8% due to favorable sales mix for our electronics sector. Land Systems revenue improved by 34% and its net profit dropped 3% year-on-year mainly due to the absence of a $3.4 million favorable tax finalization adjustment. Marine's revenue was flat but its net profit grew 38% largely due to its improved U.S. tax -- U.S. shipbuilding performance. We had a good start to the year, and we also had a strong quarter for contract wins, which helped us to strengthen our order book to a high of $14.1 billion. During the quarter, we announced over $2.1 billion worth of new contracts contributed largely by a 10-year contract extension by one of our aerospace customers and the various Smart City-related contracts at the electronics sector. Outside of this total, Marine also secured new contracts. For example, it was awarded the barracks barge, also known as APL class berthing barges by the U.S. Navy. So this is first of 4 options that was exercised, bringing the total firm order now to 3. If you recall, we said we had a firm order of 2 with option of 4 APL barges. So now we have a firm order of 3. A highlight of the first quarter was our proposed acquisition of Newtec, a satcom company based in Belgium, at EUR 250 million for the electronics sector. I've shared during the analyst call back then, which many of you participated, that this acquisition is a meaningful development in our execution of the group's Smart City growth. We are not a new participant in satcom, as you all are familiar with. And in fact, we have been growing this business through our U.S.-based iDirect and Singapore-based satcom product and solutions business team over the years. Satcom is a fast-growing industry. The search of low Earth orbit, or LEO, LEO constellations will increase bandwidth capacity and reduce operating cost, thereby creating new demand for satcom solutions. New use cases, especially to support Smart City applications such as IoT and connected cars, will drive demand for satcom services. We see Newtec's products, capabilities and market access as complementary and synergistic to our current satcom business and when acquired, will enable us to meet demand across the full spectrum of the satcom market. Now at this point, we are looking to complete the transaction sometime in the second half of this year. This acquisition is expected to be earnings accretive from year 2 onwards. In other words, around the second half of next year. We expect to incur transaction expenses of about 1% of purchase consideration, which is quite normal for transactions of this size. Most of the transaction expenses will be incurred in the second half of -- in 2019, largely in the second half of the year. For our land systems sector, one highlight is that we received our first seaport autonomous material handling solutions contract which is awarded by the Singapore container port operator, PSA. 80 automated guided vehicles will be integrated into the operations of PSA's next-generation port in Tuas, which is expected to commence in phases from 2021 onwards. So now moving to more recent developments. First, on our aerospace sector, we completed our acquisition of MRAS on the 18th of April. This addition has now boosted our aerospace network facilities in the U.S. to support regional and global customers. Including Baltimore, where MRAS is based, the group now has major operations in 17 U.S. cities, further strengthening the position of the U.S. as our largest market outside Singapore. Now we expect this acquisition to be accretive -- earnings accretive. An immediate step for us is to ensure that the integration of MRAS into the aerospace sector is seamless with minimal disruption to our business. Now to this end, a team has been formed -- integration team has been formed, comprising staff from the Singapore office as well as members of the MRAS team to focus on the integration process. Over at Marine, you have learned the details of the Polar Security Cutter contract from Sing Chan. I will not go into details here again. On project management, VTHM has put together a team that has extensive experience in all elements for the -- to support the PSC program from design to system integration to construction. This includes both in-house expertise as well as our supply chain partners. As Sing Chan has said before, that our U.S. yard now, Halter Marine, is a stronger yard than before due to the initiatives that we have put in place over the past couple of years to strengthen our business operations and to deepen its capabilities. We also would have noted that the yard's utilization has been very healthy with numerous wins, which we have announced in the last months -- last few months. We are now all geared to execute the projects on hand and for the Polar Security Cutter to be delivered on time and successfully. So on this note, I've completed my prepared remarks. I will open the floor for questions. Yes, Rachael, please?
This is Rachael from UBS. I have a question on your order book. So the announced orders seem to exceed your actual order book. If we add what you've announced for Electronics, Aerospace and Marine and subtract the delivered orders in Q1, we should actually be seeing an order book closer to $15.5 billion instead of $14.1 billion. So could you help us understand how you calculate your order book?
The order book -- what's in the order book is actually quite mathematical. It is how much we draw down plus new contracts that we win. So we arrived at $14.1 billion based on that mathematics. So there's nothing unusual in this quarter that warrants any discussion on our computation of order book.
This is Ajith from UOB Kay Hian. Several questions from me. Firstly, Sing Chan, when -- theoretically, if the U.S. Navy exercises the options, when could they do so? So that's my first question. Second question to Serh Ghee on the AMM front. I noticed there's a decline in revenue in the current quarter. Is there any specific reason for it? Do you see any signs of a slowdown? Is it because of slower PTF work? Are you being affected by the B737 grounding? I mean I spoke to several other companies. They said that they are being affected because there's a shortage of narrow-body fleet stock. So let's see, what else? Yes, in terms of the transaction cost for MRAS, would that be also -- approximately 1%, also, would it be recognized in 2019? Then finally, on the IFRS 16 in terms of the depreciation of the capitalized operating leases. Is it going to be on a straight-line basis over -- for about 30 years? Yes, these are my questions.
So I'll let Serh Ghee Lim have the first question -- Sing Chan and then Serh Ghee and then we follow that by Cedric. We will go there in that order. Sing Chan?
The option have expiry dates. They are January 2023 and 2024, respectively. But obviously, we are hoping that before the expiry date -- well before the expiry dates, the U.S. Department of Navy would have exercised the options.
You asked more than one question for me. Just one question. Okay. The first one regards to the AMM. You asked whether the drop -- is it due to a slowdown in the horizon. The AMM drop is actually due to the sales mix, and it's not due to the core -- actually, the core airframe maintenance business remains robust, resilient, but we do see other part of the AMM -- AMM is a cluster, not just the Aircraft Maintenance and Modification but also includes other business portfolio like the pilot training, okay? So we -- there's a slight delay in the relocation of our pilot training facilities from Ballarat to [indiscernible]. So that sort of affect the AMM business segment. The 737 MAX grounding is a rather topical question. Currently, we do not support the 737 MAX MRO. What is the impact? I would say it's possibly net positive for the aftermarket, but it's still too early to say. Obviously, it depends a lot on how long would be the 737 MAX be grounded. If it stretched beyond the third quarter of this year, okay, then I would see that the airlines will start again investing in the older generation aircraft to backfill the capacity loss due to 737 MAX. And if that happens, then I would say that the net positive will increase a little bit more positive. As far as the MRAS, you asked whether the transaction cost will be -- is it around the same ballpark and whether it will be ticking up this year. It's in the same ballpark, but the cost has actually been ticking up last year, the transaction cost. As what Cedric and Vincent have mentioned, the MRAS will be accretive even after we factor in the interest expense as well as the integration costs.
Okay. On IFRS 16, fundamentally, what happened is that IFRS 16 will not allow operating leases and will require companies worldwide to basically present value all the operating leases and treat it as an asset. So within the asset, there will be depreciation and interest payment. In terms of depreciation, because we have different kind of operating leases that are now being treated as assets. It is straight line, and it can range from 2 years to 30-odd years depending on the type of asset, PC versus a lease of a building. So although depreciation is straight line, the interest expense associated with that piece of asset would be like a triangle because outstanding principal in early years will be higher. And as depreciation takes place, the outstanding value of the asset will be lower, and therefore, the interest expense [ or cost will ] drop. So in other words, we are taking the medicine up front with benefit in the future as compared to straight-line operating leases in the past.
If I may ask a follow-up question to that. So excluding the impact of this IFRS, would that be correct to assume that earnings would have been a tad better?
Yes, it will be better, yes.
Yes, Siew Khee, please?
Yes, just we'll go by division. For Aerospace component, CERO and EMS was also quite strong even Q-on-Q and year-on-year. Anything special that you want to highlight? Because I remember you said that the outlook for component may be a bit challenging, but this quarter it was a quite strong increase and for EMS as well.
The components business segments remain challenged. The improvement in the CERO business is due to the engine. The reason is because we -- at the PBT level, the reason is because we have managed to recover interest expense charges from a customer that had not been paying us promptly.
How much [ is that? It's just one, right ]?
Yes. It's -- if I can recall, it's about [ $3-odd million ].
EMS?
EMS, essentially it's, again, sales mix plus PAT has improved due to the accrual -- the tax -- prior year tax adjustment.
Okay. So on Marine, can I just check, if you are going to study the design and engineering for the next 18 months, do we expect upfront costs to implicate your earnings or shipbuilding from '19 and '20 before your construction in 2021?
Okay. As far as recognition of revenue is concerned, there is no change. So the revenue recognition method will stay the same as in all other previous programs, one. Two, in as far as cash flow is concerned, it's in agreement that we're allowed to build progressively.
So you start building even when you do the engineering study?
That's correct.
Okay. When you said design is proven, this is in-house design or you are buying or would be external party? I just wanted to hear your point of view on how are you doing differently for this project versus the rest of the projects in U.S. last time which we have seen cost overrun? And also, given that this is a new sort of technology and design for you, how are you doing differently?
So it's a very good question. In this particular case, i.e., Polar Security Cutter, the parent design, this is how we call it, is the Polarstern II. So the Polarstern II design is -- it is very advanced, if not completed stage. That's one. Two, I earlier mentioned we've got this 18 months of funded design studies. And in the 18 months, we went through several iterations -- to be exact, 6 -- and we went through model tests. We also interacted with the design company that owns this parent design. We have also hired in experts from several countries: Germany, Finland, Coast Guard ex-staff to help in the validation and the iteration of design before, as I said, we submitted the offer in October of 2018. Now going forward, another 18 months, there would be several stages. In our terms, we say PDR, CDR and then IDR. So these are stages of reviews that we do together with the customers. Likewise, in Singapore, with our programs with the Navy, for example, we do the same. Last but not least is that the customer will ensure that we are production-ready before we're even allowed to cut steel. And you can -- and there will be a lot of participation, active participation from the customer side. So we have provided -- we have taken all this into consideration when we priced our product, taking into consideration, for example, the number of engineering man-hours that we need. So as I mentioned earlier, we have to increase the size of our engineering workforce. But in the unlikely event that we're not able to ramp up, we've got alternative means. We have a plan B to make sure that we can meet the requirements of the customers, which, in this case, it will be the Navy as well as the Coast Guard. They have a joint program office.
How many -- what's the workforce in U.S. now and how much do you intend to increase?
Okay. From now till the end of 2019, because we are in the design stage, so there is not a lot of requirement for the production workforce. So what's the current workforce in the U.S.? Around about 500. What is it that we need to ramp up will be largely in the engine workforce -- engine design workforce.
Sorry, I actually forgot to ask you a question, Ravinder. Large-scale project. Is there anything special that you want to highlight in that? Because it's quite strong this quarter.
Yes. So I think, overall, 2 points. I think first point is that as Vincent mentioned, last year, this quarter was very strong, very unusual for us. Typically, our revenue per quarter should be at about [ $585 million. So as I said ], because of project completion as well as some projects that were completed using completion method, so as a result, the revenues in the quarter were -- last year was very strong. This year's quarter for the electronics sector, I think numbers are actually quite good. First quarter is typically not our strongest quarter but quite a good quarter. For LSG in particular, on the revenue side, actually we had a number of projects that were completed on the train side. And as a result, there's some additional revenue we recognized. And then in terms of profitability, part of it is simply because of the sales mix and part of it, some of the charging mechanism that we have because LSG is part of the electronics corporate headquarters. So just some of the accounting process. But if you look at LSG as a whole, I think we've done very well this quarter both on revenue point of view as well as profitability. But overall for the year, we'll probably maintain the momentum simply because of the nature of the Electronics business, which is based on projects. And when you look at it from a full year point of view, the momentum will be maintained.
Okay. So for LSG, it could be up and down quarter-to-quarter?
Quarter-to-quarter, yes. Depends on when the projects are completed.
Sure. And then so far, should we be actually concerned about the CSG margin? Or is the gain, sales mix and all, is there any like allocation of costs?
Okay. So CSG, our satellite business is part of the CSG group, and I think in previous quarters I've explained that they have a different cycle. Their cycle tend to be stronger because of the way the costs are loaded, tend be stronger towards the end of the year. But generally, CSG, as a group, is very strong in product business. I think they have got good orders this first quarter. So overall, we expect them to maintain the profitability and the revenues.
And also, the transaction costs will be parked in CSG for Newtec...
Yes. Transaction cost for Newtec will be parked in CSG.
This is Jason from DBS. So I think we asked this before in the earlier analyst presentations, but we're seeing again increasing tensions between the U.S. and China and ST Engineering is still expanding its presence in the U.S. So could you help clarify the potential impact of opportunities, if any, from escalating tensions between the 2 countries? So that's the first question. And on the second question, can you share more on the joint venture with SP Group to build an alternative fiber network? I understand that they mentioned they are looking to invest hundreds of millions. So I'm just looking what's the split between ST Engineering and SP Group and also what's the expected investment only? And finally -- okay, actually that's it for now.
Okay. So maybe I'll take on the first question. Obviously, for trade tensions, that affects the entire world. We are still watching how this plays out. At this time, the impact on our group, there is some impact, but I mentioned to you that it's not material because for long-term projects, there are always adjustment factors that we work with our customers. And for short lead time, we -- kind of items we could potentially pass it into the market. But we do have some negative impact but it's not material for us to be concerned. We need to watch the space. One of the strengths that we have is that we have a diverse portfolio, and we draw on each other's strengths to help us weather through difficult times. Now at this point, we're certainly watching it carefully. These kind of trade tensions, we're not -- we are not immune totally at all, and we just have to keep watching and make sure that we optimize our supply chain and then we strengthen our core capabilities and operations to be resilient -- as resilient as we can in macro -- against the macroeconomic movements.
Okay. So I'll take the question on SPTel. So I think you may have read the recent press announcements made by SPTel. So SPTel is a JV between ST Engineering and Singapore Power. And the JV builds on a business that actually SP have had for many years, which is a company that has fiber, cable -- they're along -- or they are alongside the power grid. And it was used traditionally for managing the power network and after some time, SPTel started leasing their fiber to other operators. So when we went into the joint venture together with Sing Power, we recognize that in Singapore, first of all, there is a growing demand for data and fiber connectivity simply because of Smart Nation drive as well as the major enterprises moving to cloud and cloud being one of the biggest drivers of future growth. We see many of the cloud companies coming to Singapore, setting up data centers in -- both for Singapore as well as for the region and the world. So there is a huge demand for more bandwidth especially at the fiber level. So SPTel asset is separate from NetLink Trust because the cables are [ lit ] deeper, well protected and, together with the power cables, they are [ lit ] for Singapore. So we decided to build -- to take use -- take advantage of the infrastructure, they have built infrastructure, and be a provider of alternative fiber connectivity. Today, in Singapore, as you may have read in the press release, there's actually only one major fiber network owned by opponent. And whenever there is a cut or a fire or a failure, typically, it affects all the service providers because they're all running the -- along this -- that's along the same pipes. So with SPTel coming on board, we actually offer alternative fiber. So our business model is really not to compete but rather to complement especially for the enterprise side. We have no intention to go to the consumer household connectivity, but on the enterprise side, whether it is critical infrastructure for government, major enterprises like banks and data centers. They have tremendous demand as well as they are looking for diversity. So we are going to invest and build and extend our reach to the major and critical infrastructure in Singapore to provide this service. And because we are building this network from scratch, in the sense that the fibers are there but the system to manage the connectivity has to be built up, we're able to build a fully digital -- a fully, what we call, self-service, one-touch dynamic system that allows a lot of flexibility to the enterprise customer. So we are going to make investments in the order of a few hundred millions between us and Sing Power in the next few years. But based on how we have studied the market and the opportunities, we are confident that this will be quite a viable business simply because the demand is there and we are providing a need that is critical, in particular, not just because of the physical diversity but also because of cybersecurity threats. So it becomes more and more important for bank security infrastructure to have alternative fiber path if you want to provide resilient and reliable fiber connectivity. So that's the approach we are taking.
And obviously, we are -- as Ravi mentioned, we are not burdened by legacy assets. So we are building it from scratch, and we're going to use software solutions and not just the traditional hardware solutions to come up with a state-of-the-art solution that is efficient and cost effective for our end customers. We, of course, will be quite selective in where we do this last-mile connection to the enterprises, as Ravi said. Where it only make economic sense, we will build. Otherwise, we will not. So we will be quite selective.
Okay. So this one is a question from Morningstar, [ Dawn Yu ]. The question is, one, could you please discuss whether you expect the higher OpEx in Land Systems to continue? If so, for how long do you expect the elevated OpEx to continue for? Two, should we expect the higher OpEx in robotics and autonomous vehicle a reflection of a shift in product mix in the medium term? Currently, the investments are actually in several areas. Three areas in particular. One is you know that we are actually rolling out the new generation -- next-generation Armoured Fighting Vehicle second half of this year. So in terms of the preparation, in terms of the investment, in terms of all the production line, it is coming to completion. We have set up the Industrial 4.0, digitalization of the production line. We have phased in the advance robotic routing and also some of automation, which position us well in terms of the productivity gain for the longer term. So that is one track. The other track is more in terms of the commercial. You know that we are doing various kind of buses -- commercial buses for LTA. So that is also rolling out later part of this year and the beginning of next year. So we do not see that there will be a continued investment of OpEx in these 2 areas. In the robotic and autonomous bus, we are actually making good progress. As you can see that we have a credible capability now to win contracts from PSA. And I think from NEA you also -- announcement, you also know that we have also won the R&D project for the road sweeper, the next-generation road sweeper. So we will continue to invest in building out the capability both at the product level and the system level for robotic in the near term. But the idea, the business model is that whenever we have the credible capability, we will go and we contract and that will help us to relieve the investment needed to build up the capability. So that is my explanation on this. Okay.
Ajith again. Could you elaborate on the nature of your JV with workforce -- Workhorse, sorry, Workhorse in the contract with -- to supply trucks? Not contract, bid for the trucks with the U.S. Postal Service, nature of your JV.
I'll leave Shiang Long to talk about it. It's not a JV. We are the prime contractor for the prototype contract, and Workhorse is our partner. We have completed the prototype phase. At this time, the RFP for the main production has not been issued, and we're not at liberty to discuss the project at this point. So that is not a joint venture. It's not a joint venture.
Yes, just to add on. So the RFPs is not out yet. It is scheduled for the 3Q, if not 4Q of this year. So the initial phase was that we partner this up -- so sorry, we partnered with Workhorse for the prototype development, and that has gone on well. We have delivered the vehicle, and it had went through all the testing that's required, and it was completed in March this year, just recently. And now we are waiting for the RFP, and we will evaluate carefully whether we shall go into bid for it. But as in -- actually, we explained about several quarters ago, about last year first Q or second Q, we elaborated that even if we win, it will not have a significant contribution to our bottom line.
Yes. So if you'll recall, I mentioned that before. This is not expected to be a significant contributor to us even if we win, from a bottom line standpoint. But anyway, the RFP is not out, so we will not be able to discuss any further detail. If there are no further questions -- any more online? If there are no further questions, I thank all of you for being here this morning, and you are welcome to join us for lunch. And for those of you who dialed in by webcast, thank you very much for your participation. Thank you.