We visited Ginva’s Shanghai factory (its largest contributor) and were impressed. Maintain BUY with a revised SGD0.40 TP (167% upside). We understand that the utilisation rate has recovered to 70-80%, mainly on orders resumption from major customers. In addition, with the robust new FY16 product pipeline ahead plus the synergies from Skyware Global, we think a strong rebound into profitability next year is likely.
■ New product introduction pipeline filing up – ready for takeoff in FY16
Global Invacom (Ginva) is currently working on a range of new products for its customers on both its low noise block (LNB) and fibre product lines. The majority of these products are set to enter mass production in 2016. For example, one of them is a new generation network product model for its customer DISH Network Corp, which is set to launch in 1Q16. Samples have already been sent and developed.
■ Ongoing automation decreases labour costs
We understand that the Shanghai factory has been investing in automation for the past two years. This was done via an expansion of its engineering team, which produces customised equipment to improve both production yields and quality. This has also resulted in labour costs savings, as seen from the decrease in worker numbers to 400 now from 700 two years ago.
■ Orders resumption leads to a higher utilisation rate
With major customers resuming their orders in August, we understand that the utilisation rate for Ginva’s Shanghai factory has also increased robustly, to around 70-80% currently (1H15: <60%). With >50% of its product volume produced by this Shanghai factory, we believe that the robust utilisation rates point towards a potential positive 4Q15 ahead.
■ Reiterate conviction BUY with a revised SGD0.40 TP
After our recent visit to its Shanghai factory, we are more convinced of Ginva’s potential turnaround, especially in FY16. This would be sparked by a pipeline of new generation products and merger synergies from Skyware Global. We believe that the group is currently trading at depressed valuations and is deeply undervalued by the market. Being conservative, we lower our FY16 earnings by 13% while reiterating our conviction BUY with a slightly lower TP of SGD0.40 (from SGD0.45), implying 10x FY16F P/E. (Read Report)
Source : RHB Research