Neratel

[KopiKat]

Just read the rather positive article in TheEdge. I was earlier wondering whether the CEO would get queried by SGX for such forecasts that's not first announced via SGX Annc... But, the figures were given by an OSK-DMG analyst...

Just in today's BT - Regulators should attend analyst briefings

Extract:

analYST briefings are interesting affairs from the regulatory standpoint because there's plenty of scope for material information to be selectively disclosed, information that could then be used by recipients to gain an unfair advantage over others in the market.

I have oftentimes read about material information in analysts' reports that never see the light in the company's SGX announcements.....

Hmm... I was wondering about some of the info mentioned in the article on whether it's the analyst's conjectures or it was something that'd been publicly disclosed before or he'd somehow gotten from Nera eg. Analysts' Briefing...

---

2nd qtr result will be out today.

Nothing out yet. I didn't see any prior notification in SGX Annc that it'll be released today.
EPS will be 'fantastic' if Nera Malaysia acquisition is recognised...

[WolfT]

I been waiting for it too.I always thought it is today then i see the 'expected date',waste my time...

go to page 9

http://www.remisiers.org/cms_images/rese...g_Note.pdf

[ValueBeliever]

Normally when the technical is that overbought it would correct but apparently, the better stock to own is Nera vs. the rest of the telecom yield play. Some take away from Edge interview:-

1) MENA is revenue is now double of 2011
2) Come 2014, they will develop their own product and package with different component. So they are flexible now to expend into other areas of microwave transmission.
3) Payment system rental is risk free, its a stable business and the plan to double it.
4) Highly likely the dividend will be maintained - so 4cts is going to continue for some time. (Reits player might like to consider this Co. as Reits are now under pressure from interest rate n NERA got no debt).
5) Nera profit margin improved in a diversified mix of product.

Lastly Ntegrator trade at PE 47, Keppel T&T PE is 14, but these two does not have the same product penetration and are different, but judging by the story now is eye ball by ppl on Myanmar potential, NERA PE will improve going fwd.

---

Normally when the technical is that overbought it would correct but apparently, the better stock to own is Nera vs. the rest of the telecom yield play. Some take away from Edge interview:-

1) MENA is revenue is now double of 2011
2) Come 2014, they will develop their own product and package with different component. So they are flexible now to expend into other areas of microwave transmission.
3) Payment system rental is risk free, its a stable business and the plan to double it.
4) Highly likely the dividend will be maintained - so 4cts is going to continue for some time. (Reits player might like to consider this Co. as Reits are now under pressure from interest rate n NERA got no debt).
5) Nera profit margin improved in a diversified mix of product.

Lastly Ntegrator trade at PE 47, Keppel T&T PE is 14, but these two does not have the same product penetration and are different, but judging by the story now is eye ball by ppl on Myanmar potential, NERA PE will improve going fwd.

[GPD]

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.

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?

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

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

[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.

[ValueBeliever]

looks like rotation play. Money that does not belong here now see opportunity in Myanmar speculative play!

Today some of my friends who never like dividend play suddenly began to see +ve vibes in this Co. also!

NERA has never been so active before and result today might have factored in all the good news!

[GPD]

Thanks Kopikat.

Looks like there will still be some firepower in NeraTel's price. Seems quite happy to stay above 80cts for the Nera Malaysia addition.

From Lim and Tan latest report, it seems like NeraTel has big potential to growth its business quite substantially.

Some real positive news on the Myanmar story from NeraTel should be the next catalyst.

Now who want to guess Q2 EPS?

[KopiKat]

A summary of the article in TheEdge by Lim & Tan yesterday from remisiers.org,


We highlight some key points from Nera Tel’s CEO Samuel Ang’s interview with The Edge (published over the weekend) :

 While Nera Tel does not have a dividend policy, the company has paid out more than 50 cents dividend a share in the past 13 years and if the company is able to continue to pay out their usual 4 cents a share in dividend, management will continue to do so;

- this will be supported by their strong prospects with 2 of their key telecommunication customers Norway’s Telenor and Qatar’s Ooredoo having won a telecom license in Myanmar. The 2 customers have 9 months to commence operations and five years to cover 75% of Myanmar with voice services and 50% of the country with data services;

- steady orders from key telco customers such as Singtel, Starhub, M1, Telkomsel, Digi.com, Maxis, Globe Telecom as these customers continually upgrade their systems to be 4G enabled;

- cash-less e-payment solutions terminals which currently accounts for about 20% of group revenue is expected to grow meaningfully as the company targets to double their terminal installed based from the current 240,000 to more than 500,000 over the next 3 years as more than more consumers prefer cash-less payment solutions, even in Myanmar where Nera Tel won a contract with a key Myanmar bank to help them install these terminals there;

- the acquisition of their Malaysian associate company would see a one-time $7mln gain from negative goodwill recognized in 2Q’13 and this will help them take full control of the roll-out of their products and solutions in Malaysia going forward;

- Nera Tel’s acquisition of the worldwide brand rights to Nera from Eltek ASA last year meant that the new markets such as Morocco, Dubai, Pakistan and Nigeria saw contributions from the middle eastern markets more than double this year to $46mln.

COMMENTS

1. The above points highlighted by The Edge is not new and we have highlighted these in our prior notes. In fact the recent big surge in share price from 60+ cents to close to 80 cents currently was due to news that Nera Tel’s customers Telenor and Ooredoo have won a telco license in Myanmar, potentially helping Nera Tel secure orders there. While its 11-12x PE is still reasonable compared to 15-20% growth expected and its 5% yield is still decent, we believe the low hanging fruits in Nera Tel is likely over and investors coming in now would likely require a longer holding period to enable more meaningful capital gains. We thus change to Long-term buy with investors still getting a decent 5% yield while they await for more meaningful contract wins and execution from management.

[Jacmar]

Another case of selective disclosure to Lim&Tan securities:

Our conversation with Nera Tel suggests that 2Q’13
(expected in early Aug’13) would be a strong quarter
boosted by several delayed orders in 1Q’13 which
spilled over into 2Q’13 as well as a one-time negative
goodwill gain of $7+mln from their acquisition of their
Malaysian associate company. Order books have
increased about 10-15% in 1H13 boosted by higher
orders in South East Asia and the Middle East as Telco
service providers upgrade their networks to cater to
higher demand for faster internet speed. They are
currently awaiting to bid for orders from Telenor and
Ooredoo as they target to roll-out their telecom
network in Myanmar. Demand for point of sales
terminals continue to be strong, underpinned by
increased demand for cash-less payment solutions
globally.

---

Another case of selective disclosure to Lim&Tan securites:

Our conversation with Nera Tel suggests that 2Q’13
(expected in early Aug’13) would be a strong quarter
boosted by several delayed orders in 1Q’13 which
spilled over into 2Q’13 as well as a one-time negative
goodwill gain of $7+mln from their acquisition of their
Malaysian associate company. Order books have
increased about 10-15% in 1H13 boosted by higher
orders in South East Asia and the Middle East as Telco
service providers upgrade their networks to cater to
higher demand for faster internet speed. They are
currently awaiting to bid for orders from Telenor and
Ooredoo as they target to roll-out their telecom
network in Myanmar. Demand for point of sales
terminals continue to be strong, underpinned by
increased demand for cash-less payment solutions
globally.

[KopiKat]

Another case of selective disclosure to Lim&Tan securities:

Our conversation with Nera Tel suggests that 2Q’13
(expected in early Aug’13) would be a strong quarter
boosted by several delayed orders in 1Q’13 which
spilled over into 2Q’13 as well as a one-time negative
goodwill gain of $7+mln from their acquisition of their
Malaysian associate company. Order books have
increased about 10-15% in 1H13 boosted by higher
orders in South East Asia and the Middle East as Telco
service providers upgrade their networks to cater to
higher demand for faster internet speed. They are
currently awaiting to bid for orders from Telenor and
Ooredoo as they target to roll-out their telecom
network in Myanmar. Demand for point of sales
terminals continue to be strong, underpinned by
increased demand for cash-less payment solutions
globally.

If I were to use Q1 Proforma EPS provided during Nera Malaysia acquisition SGX Annc, that means an additional 1.93ct. Also, assuming Lim & Tan analyst got the right suggestion from their conversation with Neratel mgmt about spillover of delayed orders, I suppose it does suggest an EPS that's higher than last year's Q212 = 0.92ct. Add that up, we ought to see Q213 EPS of at least 3ct. Further Lim & Tan analysts got a one-time negative goodwill figure of $7Mil+ from their conversation, which is higher than the $6.61Mil figure from the SGX Annc for Proforma Q113. Perhaps an EPS closer to 3.5ct (depending on the spillover quantum)??