Neratel

[KopiKat]

Can someone enlighten me on this Nera Malaysia thing? It paid $200k to get a company that is worth $7mil? Strange that the vendor is willing to sell it off so cheaply?

Will it need to restate its Q1 statement with this restructuring which adds about $320k to its Q1 profit? The EPS will then becomes 1.71cts. Perhaps Q2 will also benefit from this restructuring as well. The Q2 report should be out soon.

In a report by OSK-DMG dated 30-Apr-13 (Post #207), shortly after the Nera Malaysia acquisition SGX Annc,

Almost-free Nera Malaysia acquisition. Due to some legacy agreements, NeraTel managed to acquire the remaining 70% stakes of its associate – Nera Malaysia for a cash consideration of merely SGD0.2m, valuing the business at 0.2x FY12 P/E and 0.03x historical P/B. Nera Malaysia generated about SGD2.8m last year and had a net book value of SGD7.2m as of end 1Q13 (around SGD5.0m in cash), representing all accumulated profits that the business had earned over the years. Pending the auditor’s treatment of the book value for exceptional gains, we raise our earnings forecast by 7.3% and 9.0% for FY13 and FY14 respectively to account for the full contribution of Nera Malaysia.

Looks like there were some legacy agreements, most likely signed when Nera Malaysia was just set up, which is allowing Neratel to now acquire the remaining 70% stake so cheaply.

There's no need to restate Q1. We'll most likely see the extraordinary impact on Q2.

It seems to me that NeraTel can actually expand its business quite easily. Any reasons why it is not pursuing growth more aggressively for the past few years. Is it limited by the market?

For Telecom segment, there was a sharp drop in '10, perhaps due to competition and little upgrading required. But, from '11, it has started growing again, largely due to the acquisition of the MENA territory rights (can read the earlier posts to find out more). Going forward, IMO, any growth is dependent more on new territory eg. Myanmar and new technologies eg. TELCOs changing to newer technologies

For Infocom, it looks like they have hit on a good growth strategy, after reading TheEdge article. From that article, they have changed to a leasing model which allows for a greater recurring stream of revenue. Perhaps, they have also been successful in penetrating the market as I see growth in this segment for the past more than 5 years (except for a slight dip in '11 after a big jump in '10).

It has also been building up its cash very nicely over the last few years.

The Cash peaked in Q212 (15ct/share) but has now dropped to 11.6ct/share. Back then, the 4ct dividend was not paid for FY11, held hostage by the STE Scheme Offer (promised 6ct if successful). They subsequently paid a Special Interim after the Offer failed, followed by another 4ct recently for FY12. Another reason for the drop in cash could be the more aggressive purchase of Eqpts for their leasing model.

However, its current price of $0.775 is about 12xPE on 4xQ1 EPS. Upside seems limited now.

The latest spurt of 'growth' will come from the Nera Malaysia acquisition. The analysts' estimate for the recurring impact (don't consider the one-off gains) is ~10%. Other potential growth would be from their Leasing Biz Model plus the more uncertain one in play now -> Myanmar.