Stratech Group

[vesfreq]

Vesfreq: I concur your view. Some of the YouTube vids still show militarymen scouring the floor for FODs, so that does say something about whether these places should spend millions per year on such a system - (I'm using the awards to hk and Dubai as reference). Though FODs are on another vid, one of the top 10 reasons for plane damage and costs.

Shall spend a bit more time digging the history of Stratech. Good management is critical. I noted that the company had 3 yrs consecutive losses before turning the corner.


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I was getting quite intrigued by this stock. Glad to know CP and some of you guys are getting into it.

My other grouse with Stratech was the amount of rights they did previously. Correct me if i'm wrong. But, its also good thing cos they don't have any more reason to do any (and I mean any) more rights. Share price among the cheaper penny stocks. Best is that it has been loss making. Makes it a more enticing buy.

I was reading Benjamin Graham's book. Would Stratech be "fortunate and able" or "fortunate because it is able"? Also, trying to find friends in aerospace trade. Hopefully, can dig more to share.

Not vested at the moment. Wallet empty.

PS: Thanks CP for the very rapid update.

[LionFlyer]

2% of 10,000 = 200 airports.
Out of these 200 airports, it was assumed that iFerret only managed to secure 30% or 60 airports, even though Stratech appeared confident of eking out an lion's share.

I note this assumption parrots Stratech CEO's comments in an article:

"Currently, both iFerret and the security monitoring systems are contributing equally to revenue, Chew says, but the iFerret will eventually be far and away the largest contributor. By his reckoning, the market for FOD surveillance systems could be as large as US$51 billion, if just 2% of the International Air Transport Association (IATA) airports implement it. In fact, he is betting that, with the financing packages Stratech is providing, the iFerret will be as common in airports as photocopiers are in offices. â We want iFerret to be as pervasive as the photocopy machine. When it became a leasing business, every office could have a copy machine, he says."

http://fod-detection.com/2013/03/13/if-o...-the-hype/

If it's a coincidence, mea culpa, but if you are citing him, indicate likewise.

Personally, I got no problems with yours/his assumptions on the size of the market as I have no other insights which an proof or disprove it. What remains is execution. Things we do not know is cost compared with competitors and effectiveness of solution compared to competitors. The existence of a financing packages would certainly help.

[vesfreq]

Not trying to score points. But, you have a very interesting assumption. A few millions to spread over presumably high passenger traffic in bigger airports. That sounds "cheap" or immaterial.

And, not forgetting that iferret can be upgraded, according to Stratech. Add another possible 50% of the clients who will eventually consider and take up an upgrade, like what Changi Airport did recently.

Tks for all the contrarian opinions. Much appreciated

The assumption made was that out of the 10,000 or so airports in the world, only 2% would opt for some form of automated FOD system. The remaining 98% will continue with manual or human scanning.

2% of 10,000 = 200 airports.
Out of these 200 airports, it was assumed that iFerret only managed to secure 30% or 60 airports, even though Stratech appeared confident of eking out an lion's share.

What are a few millions of dollars to big international airports where operating costs can run up to hundred of millions or billions of dollars a year? It is akin to "changing to a new pair of tires" which can last you longer...

Was this assumption unreasonable?

tks.

Vesfreq: I concur your view. Some of the YouTube vids still show militarymen scouring the floor for FODs, so that does say something about whether these places should spend millions per year on such a system - (I'm using the awards to hk and Dubai as reference). Though FODs are on another vid, one of the top 10 reasons for plane damage and costs.

Shall spend a bit more time digging the history of Stratech. Good management is critical. I noted that the company had 3 yrs consecutive losses before turning the corner.


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[Curiousparty]

We have already made assumptions that only 2% of the world airport would implement some form of automated FOD system.

Hence, we don't really care about whether the rest of the remaining 98% do it manually or don't even do it at all...

Vesfreq: I concur your view. Some of the YouTube vids still show militarymen scouring the floor for FODs, so that does say something about whether these places should spend millions per year on such a system - (I'm using the awards to hk and Dubai as reference). Though FODs are on another vid, one of the top 10 reasons for plane damage and costs.

Shall spend a bit more time digging the history of Stratech. Good management is critical. I noted that the company had 3 yrs consecutive losses before turning the corner.


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[thor666]

Hi stratech, my point on the manual/semiauto FOD is that from a companys investment perspective, there is still a gap between tedious but presumably cheap manual/semi system, versus almost fully automated (i think there needs to be still some human monitoring) but expensive system.

As to your assumption of 30 airports in 5years, I think it is possible but based on historical trend, I think 30 airports in 10 years might be more conservative an estimate.

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[chew]

Only had cursory look. My thoughts are 1) balance sheet is very weak, 2) iferret wins at dubai and changi airport, military airfield, admittedly smaller contracts, did not do much for profitability. So I can imagine company can eke out profits from Hong kong, is this going to be more one off or can it increase the rate of adoption by other airports will be the question. But that will require a stretch of imagination that challenges value principles.

[Curiousparty]

FAA accreditation and "Buy American Waiver are key and will accelerate take up world wide from this point henceforth...

Now, Chew figures that he can quickly broaden the market for Stratech' s iFerret system. In April 2012, the iFerret received accreditation from the US Federal Aviation Authority (FAA), which it had long been seeking. Chew likens FAA accreditation to the US Food and Drug Administration (FDA)' s approval for a pharmaceutical product.
But it is more than just a stamp of approval. As the iFerret system fulfils all the requirements in the FAA advisory circular, airports are allowed to use their airport tax to offset the cost of installing iFerret.

That' s not all. ' One month later, we got the ' buy American waiver' for selling to America,' Chew says. The Buy American Preferences regulations require purchases in AIP (Airport Improvement Program)-funded projects to be produced in the US. The FAA, however, has the authority to waive the Buy American Preferences if certain conditions are met.
With the waiver, iFerret is now officially on the FAA' s Buy American Conformance List. This is a list of equipment that is frequently used on AIP-funded projects that meets the Buy American requirements or has been issued a Nationwide Waiver.

The waiver will allow iFerret to be used on AIP-funded projects without having to receive separate waivers for each project. The AIP also provides grants to qualifying airports for projects that enhance airport safety, capacity, security and environmental concerns. Since iFerret had recently received FAA approval, airports that purchase it will be eligible for the AIP grants.

These approvals by the US authorities are already having an impact on Stratech. Last November, Chicago' s O' Hare International, one of the world' s busiest airports, began using the iFerret system. Now, Chew expects more US airports to sign up. And, it might also help Stratech sell its iFerret system elsewhere in the world, because the FAA advisory is viewed as the de facto global standard. ' Many airports and aviation authorities were watching for this, and many of them either confirmed their budgets or started putting together their budgets last year,' Chew says. ' So, we are expecting the procurement of our FOD detection systems to start this year.'

In fact, Stratech has identified 35 airports with 93 runways that have taken action to implement an FOD surveillance system. And, the company is doing everything it can to persuade them to complete the transactions, including helping with the financing. ' In December last year, we announced the creation of Stratech Finance, which would provide flexible financing for iFerret,' Chew says.


The FAA has published advisory circulars that provide directions on specifications and funding of FOD detection systems, and these have since been adopted as de-facto standards by airports globally. IFerret received FAA approval in March 2012. The company says that winning the Dubai contract is significant because, of the three systems approved by the FAA, the Stratech iFerret has beaten one and will be replacing the other.

Only had cursory look. My thoughts are 1) balance sheet is very weak, 2) iferret wins at dubai and changi airport, military airfield, admittedly smaller contracts, did not do much for profitability. So I can imagine company can eke out profits from Hong kong, is this going to be more one off or can it increase the rate of adoption by other airports will be the question. But that will require a stretch of imagination that challenges value principles.

[thor666]

In fact, Stratech has identified 35 airports with 93 runways that have taken action to implement an FOD surveillance system. And, the company is doing everything it can to persuade them to complete the transactions, including helping with the financing. ' In December last year, we announced the creation of Stratech Finance, which would provide flexible financing for iFerret,' Chew says.

Hi curiousparty, do u have the source for this quote? I thought this might be substantial information. Based on the 35 airports, I reckon at least 20% may go to iFerret.

Side note: I glanced through 3 yrs annual report yesterday. Management seems to be quite transparent about their dealings. Their ar 2013/14 is a dead giveaway on which country's military airforce procure their system (look at their segmental revenue by region). It be a windfall if they can move deeper into this segment.


To general: is there any unlocking value for a stock that has not paid any dividends thus far? I do notice that david chew and associate control <50% of the company, so a takeover/delisting might be one of the value unlocking moves.

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[edvantage]

yes, we know that there are 3 kinds of solutions and iFerret has competitors
1. manual
2. radar
3. iFerret (Artificial intelligence)

***

Three players
Stratech does not have the market entirely to itself, though. According to Chew, there are at least two competitors in the FOD surveillance systems space. He adds that the industry has high barriers to entry because it is tightly regulated and involves significant investment in technology and intellectual property. ' There are only four systems that have been certified, one of which is mobile and smaller,' Chew explains. ' That boils down to only three players, including ourselves, in the fixed system side of things.'

Besides monitoring airport runways, Stratech is also applying its technology to security surveillance systems. ' Some of the most secure facilities in the world are protected by technologies made [by us] in Singapore,' Chew claims. These include the headquarters of the US Department of Homeland Security in Washington, DC; the headquarters of the Federal Reserve in DC; the headquarters of the Federal Reserves of Detroit and Kansas City; the Interpol H=headquarters in Lyons; and two United Nations sites.
He adds that Stratech recently won a deal to provide 28 systems to Saudi Arabia' s Ministry of Interior. ' We are very strong in this area of security access control,' he says.
Not surprisingly, Stratech also claims to have an edge when it comes to security surveillance of airfields. ' Air bases in Singapore are protected by us, and we are right now in the midst of a massive tender for many of the military bases here,' Chew says. ' We want to focus on airfield surveillance because that is our crown jewel today. He adds that Stratech is now on the verge of winning a military-related contract. ' We hope to be able to release some good news from the military strandpoint soon.'

Just to add what I know.

iFerret's vision technology is superb. The image of an unlit runway at night looks almost the same as one taken during the day.

Tarsier (by QinetiQ) used to be installed at Dubai Airport but that had since being replaced by iFerret

iFerret is currently being tested for use in monitoring airport runway pavements as well. Runways can suffer from cracks and pop ups (expanded role - not just in monitoring FODs)

iFerret BDA is also currently being tested by one of the world's top air force. That involved some kind of software integration. (an expanded role here as well)

[Curiousparty]

The Edge Singapore, March 4, 2013

Corporate: Stratech expects revenue boost in FY2014 as runway surveillance system takes off


David Chew, executive chairman of Stratech Systems, calls up a picture of an airport runway at night on his computer screen. It is a sea of blackness punctuated by a narrow strip of lights. He then calls up a picture of the same runway at night as seen from the control tower using Stratech' s iFerret system. It looks much as it would in the daytime.

' iFerret provides night visibility,' Chew says. It is a complex technology developed by Stratech over many years that uses electro-optic sensors to capture high-definition, coloured images. The system comes with video analytics capabilities to process and interpret the images. ' We build technologies around what we call intelligent vision. We have a simple explanation,' he adds. ' It' s about... teaching the computer how to interpret images that have been captured.'

Stratech has developed two broad applications using the technology. One relates to security surveillance systems, and the other involves a system for detecting foreign objects and debris (or FOD) on runways that might endanger aircraft as they land and takeoff. FOD also reportedly incurs an estimated US$4 billion ($4.95 billion) in repair and maintenance costs annually, and up to US$13 billion a year including associated costs such as flight delays and cancellations, lost productivity and revenues, potential liabilities, and damaged reputations. Sadly, it also occasionally leads to catastrophic loss of life. An example of a fatal incident involving FOD was the Air France Concorde jet crash in 2000 at Charles de Gaulle Airport in Paris, in which 113 lives were lost.

According to Chew, the iFerret system could also help improve the control tower' s visibility of aircraft on the ground, which helps in directing them and avoiding accidents. ' The accident [with SIA] in Taipei was basically when air traffic control didn' t know where the aircraft was heading. It was heading for a runway that was closed, and it ran on the taxiway that was also closed. Even though there were barriers on the taxiway, the aircraft charged down and killed half the passengers,' Chew says. ' The aviation industry operates in the dark, after the sun goes down, and we are going to revolutionise it.'

Among the airports that have already adopted the iFerret system are Changi and Dusseldorf. Besides spotting the odd piece of debris on the runway, the system has also helped alert the authorities to birds and animals in the path of aircraft that are taking off or landing. ' We found snakes, tortoises, monitor lizards crossing the runway at Changi,' Chew says.

FAA accreditation
Now, Chew figures that he can quickly broaden the market for Stratech' s iFerret system. In April 2012, the iFerret received accreditation from the US Federal Aviation Authority (FAA), which it had long been seeking. Chew likens FAA accreditation to the US Food and Drug Administration (FDA)' s approval for a pharmaceutical product.

But it is more than just a stamp of approval. As the iFerret system fulfils all the requirements in the FAA advisory circular, airports are allowed to use their airport tax to offset the cost of installing iFerret.

That' s not all. ' One month later, we got the ' buy American waiver' for selling to America,' Chew says. The Buy American Preferences regulations require purchases in AIP (Airport Improvement Program)-funded projects to be produced in the US. The FAA, however, has the authority to waive the Buy American Preferences if certain conditions are met.

With the waiver, iFerret is now officially on the FAA' s Buy American Conformance List. This is a list of equipment that is frequently used on AIP-funded projects that meets the Buy American requirements or has been issued a Nationwide Waiver.

The waiver will allow iFerret to be used on AIP-funded projects without having to receive separate waivers for each project. The AIP also provides grants to qualifying airports for projects that enhance airport safety, capacity, security and environmental concerns. Since iFerret had recently received FAA approval, airports that purchase it will be eligible for the AIP grants.

These approvals by the US authorities are already having an impact on Stratech. Last November, Chicago' s O' Hare International, one of the world' s busiest airports, began using the iFerret system. Now, Chew expects more US airports to sign up. And, it might also help Stratech sell its iFerret system elsewhere in the world, because the FAA advisory is viewed as the de facto global standard. ' Many airports and aviation authorities were watching for this, and many of them either confirmed their budgets or started putting together their budgets last year,' Chew says. ' So, we are expecting the procurement of our FOD detection systems to start this year.'

In fact, Stratech has identified 35 airports with 93 runways that have taken action to implement an FOD surveillance system. And, the company is doing everything it can to persuade them to complete the transactions, including helping with the financing. ' In December last year, we announced the creation of Stratech Finance, which would provide flexible financing for iFerret,' Chew says.


Three players
Stratech does not have the market entirely to itself, though. According to Chew, there are at least two competitors in the FOD surveillance systems space. He adds that the industry has high barriers to entry because it is tightly regulated and involves significant investment in technology and intellectual property. ' There are only four systems that have been certified, one of which is mobile and smaller,' Chew explains. ' That boils down to only three players, including ourselves, in the fixed system side of things.'

Besides monitoring airport runways, Stratech is also applying its technology to security surveillance systems. ' Some of the most secure facilities in the world are protected by technologies made [by us] in Singapore,' Chew claims. These include the headquarters of the US Department of Homeland Security in Washington, DC; the headquarters of the Federal Reserve in DC; the headquarters of the Federal Reserves of Detroit and Kansas City; the Interpol Headquarters in Lyons; and two United Nations sites.

He adds that Stratech recently won a deal to provide 28 systems to Saudi Arabia' s Ministry of Interior. ' We are very strong in this area of security access control,' he says. Not surprisingly, Stratech also claims to have an edge when it comes to security surveillance of airfields. ' Air bases in Singapore are protected by us, and we are right now in the midst of a massive tender for many of the military bases here,' Chew says. ' We want to focus on airfield surveillance because that is our crown jewel today. He adds that Stratech is now on the verge of winning a military-related contract. ' We hope to be able to release some good news from the military standpoint soon.'

Hard slog
Rotund, with a full head of black hair, Chew, 55, looks much younger than he really is. That is despite struggling for some 24 years to build Stratech, in which he holds a 38% stake. While he loves the technology industry, he grumbles that life as an independent entrepreneur in Singapore is tough. ' When my daughter' s school approached me to give a career talk, I said I' m not going to talk about entrepreneurship because' ¦ it' s very, very tough,' Chew says. Instead, he encouraged girls to pick up technology as a career, because world-class technologies are made in Singapore.

According to Chew, he had to work hard just to get Changi Airport to try out the iFerret system. ' In February 2006, an 18-month pilot project at Changi got off the ground,' he says. It was only in February 2008 that Stratech managed to formalise a deal, and iFerret finally ' went live' at the airport in June 2009.

For 1HFY2013 ended Sept 30, revenues fell sharply to $1.7 million, from $4.5 million in the previous year. Net losses widened to $4.2 million from $3.2 million, in the same period. Operating cash flow remained in the red, with a cash outflow of $4.9 million for the half year. In Feb 22, the company raised some $3.5 million via a placement of 150 million shares to beef up its balance sheet. Together with the conversion of its convertible bonds into equity, the company' s gearing ratio is now 0.61 times, versus 0.72 times as at Sept 30.

Investors should not expect to see much improvement for the rest of FY2013. ' The current financial year will not be very exciting,' Chew admits. FY2014 and beyond could see the beginnings of a turnaround. ' In many areas, the signs are very strong,' he says. ' There will be a strong pick-up in iFerret, and many of the people we have been talking to will either finalise their budgets or put up budgets for approval this year.'

Currently, both iFerret and the security monitoring systems are contributing equally to revenue, Chew says, but the iFerret will eventually be far and away the largest contributor. By his reckoning, the market for FOD surveillance systems could be as large as US$51 billion, if just 2% of the International Air Transport Association (IATA) airports implement it. In fact, he is betting that, with the financing packages Stratech is providing, the iFerret will be as common in airports as photocopiers are in offices. ' We want iFerret to be as pervasive as the photocopy machine. When it became a leasing business, every office could have a copy machine,' he says.

Shares in Stratech are up 45% this year, and the company has a market capitalization of just $39 million. The company currently has no analyst coverage.