Neratel’s 9M14 NPAT of SGD11.6m only makes up 56% of our FY14 NPAT estimates. As a result, we slash our FY14 revenue and NPAT estimates by 7.7% and 17% to SGD191m and SGD17m respectively. We change our valuation methodology to a DCF valuation as well to reflect the cash-generative value of the business.
As Neratel is supported by an attractive 7.4% dividend yield, we maintain NEUTRAL with a slightly higher DCF-based TP of SGD0.83 (from SGD0.72) a 2.5% upside.
■ Telecom segment affected by revenue recognition date
Neratel’s 3Q14 revenue dipped slightly by 1% YoY to SGD49.7m as a 29.6% decline from the telecom segment due to revenue recognition was partially offset by higher turnover from the infocom segment, which grew 29.2% YoY. However, gross profit margin shrank to 30.2% from 30.5% partially due to a change in sales mix in product, project and services. 3Q14 NPAT inched up slightly by 7.5% YoY to SGD3.54m from SGD3.3m.
■ Dividend yield to maintain around 7.4%
We expect management to still be able and reward shareholders with at least an annual dividend of SGD0.06 in FY14&15, which constitutes an attractive dividend yield of around 7.4% in both years, unless they suffer a plunge in its earnings.
■ Future key drivers - network infrastructure & payment solutions
Going forward, we expect these two business segments to continue to deliver strong blended growth of above 20%, offsetting any decline in revenue from the telecom segment.
■ Maintain NEUTRAL with a DCF-backed revised TP of SGD0.83
As Neratel’s 9M14 NPAT of SGD11.6m makes up only 56% of our FY14 NPAT estimates, partly due to higher operating expenses and lower-than-expected turnover, we slash our FY14 revenue and NPAT estimates by 7.7% and 17% respectively to SGD191m and SGD17m. In addition, we switch to a DCF based TP (WACC 8.5%, TG=0%) of SGD0.83 from a historical P/E valuation of SGD0.72 to fully reflect the cash-generative nature of this business. As the company still has a healthy balance sheet with a net cash position supported by an attractive dividend yield of around 7.4%, we maintain NEUTRAL. (Read Report)
Source : DMG/OSK Research