Friday, April 26, 2013

Review of Neratel Q1 2013 Results

Nera Telecommunications reported their Q1 2013 results under their new management team which saw their overall profits for the quarter drop below the S$6m mark.

 
 
Revenue for the quarter dropped from S$43.5m to S$36.4m due to decline in their "Telecommunication" business segment. The decline was mainly attributed to lower sales of their microwave radio equipment and Satellite equipment in the Asia Pacific and Middle-East/N. Africa markets. There was also a delay in projects related to their network infrastructure equipment that resulted in lower revenue for the quarter.
 
The good news however, is that gross margin has improved from 35.5% to 41.6% in both the "Telecommunication" and "Infocomm" business segment due to more competitive sales mix-in products and services. Operating and other admin expenses increase marginally year on year.
 
Earnings per share (EPS) has dropped from 1.79 cents to 1.62 cents this quarter.
 
  • Healthy balance sheet - If there is one thing I like about Neratel, it is because they keep their balance sheet simple and safe. The company is in the net cash position and debt free for a number of years now. Their cash equivalent and retained earnings made up almost 60% of the entire balance sheet and you can see how that they can keep up giving 4 cents dividends for the past couple of years.

  • Payment Solution business is expected to grow in the market driven by the increasing spending and transactions and government initiatives to promote cashless payment. The growth is evident with an increase of 55.2% this quarter alone.

  • Growing Myanmar story - Entry of the telecommunication infrastructure and payment solution business into the growing Myanmar market signifies growth potential for the company. This is evident just by looking at how Singtel bid aggressively for the license to operate in the Myanmar market.

  • Risks - New management team. It is interesting to see how the new management team drives the direction for the company. Personally I would have preferred that the new management focuses more on expansion into the geographical neighbouring market rather than M&A activities.

  • Risks - Increasing competition from its "Telecommunication" and "Infocomm" segment, in particular the wireless and network infrastructure.

Conclusion
It's going to be hard to see any upside to the stock at this moment. The company is going through a transition period in terms of the future direction the new management wants to set. At current closing price of 67 cents, the yield is close to 6% which looks to be sustainable given the strong balance sheet they had. Profits look to have dipped below the S$6m mark and is worrying if this trend continues in the next quarter. For your info, OSK DMG issued a report on Neratel in Feb 13 with target price of 72 cents which I think look terribly unlikely given that the optimism to project a 10% increase in profits in 2013. For investors, I would rather adopt a wait and see attitude to monitor the next few quarter results to determine whether I will go long for the stock.

I am vested with 20 lots of Neratel at the moment.

2 comments:

  1. What is your view about the "restructuring" ? :) never read the announcements? :P

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    1. Hi Mr. IPO

      You made a good review on Neratel results.

      I wouldn't worry too much about the restructuring of the Nera Malaysia. I think it's planned well strategically by the new management.

      One thing interesting was the resolution guidance to issue debt from the AGM which Drizzt from Investment Moats mentioned out to me. I think the new management no longer wants to settle Nera as a safe and cash cow company. Rather, they would want to bring Nera to a different level, perhaps more acquisitions and geographical expansion coming up.

      Definitely interesting times for Nera investors.




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