Nera Telecommunications - UOB Kay Hian 2016-09-27: POS Sale Completed; Expect Special Dividends

Nera Telecommunications (NERT SP) - UOB Kay Hian 2016-09-27: POS Sale Completed; Expect Special Dividends NERATELECOMMUNICATIONS LTD N01.SI

Nera Telecommunications (NERT SP) - POS Sale Completed; Expect Special Dividends

  • NeraTel has completed the disposal of its POS business, which we estimate to bring in gains of S$71.5m. 
  • Next, we are looking at NeraTel announcing special dividends from the sales proceeds, to bring 2016 dividend yield to 25.9%. 
  • We remain confident of NeraTel’s ex-POS future, particularly given the strong orders we have seen. Also, the fourth telco may bring further orders as it rolls out network coverage. 
  • Maintain BUY. Target price: S$0.835.



WHAT’S NEW


Disposal of POS business completed with estimated S$71.5m gains. 

  • Nera Telecommunications (NeraTel) has completed the disposal of its point-of-sale (POS) business to Ingenico Group for S$88.0m cash, inclusive of S$10m held in escrow for nine months to satisfy any contingent liabilities. 
  • The price came in at a 453% premium to book value, 1.9x sales and 31.3x PE, and resulting in estimated one-off gains of S$71.5m.

Bidding for de-facto fourth Singapore telco begins. 

  • Proceedings for the upcoming 4G airwave auction have begun, setting the stage for the Singapore’s fourth telco. The interested parties have talked about Initial capex plans for 4.5G/Pre5G networks which range from S$300m to S$800m. 
  • We believe NeraTel will likely benefit from this anticipated spending in telecommunications and network infrastructure equipment.


STOCK IMPACT


Special dividends expected in 3Q16 with full-year yield of 25.9%. 

  • We expect the company to pay out a hefty special dividend soon as sales proceeds come in. As such, our expectation for 2016’s dividend remains at S$0.19/share, translating into an attractive 25.9% yield.

Ex-POS business remains strong with fourth telco likely to help orders. 

  • While telecom orders increased slightly in 1H16, network infrastructure showed an impressive jump of 29.3% yoy. We believe these numbers could increase further after the birth of Singapore’s fourth telco.


VALUATION/RECOMMENDATION


Maintain BUY and SOTP-based target price of S$0.835. 

  • We share management’s view that the remaining business will grow to fill the gap and that the disposal of the POS business will enable the management team to focus their efforts on its core network solutions business, currently running with record-high orders. 
  • With the disposal completing as expected, our SOTP-based target price of S$0.835 remains unchanged.


SHARE PRICE CATALYST


Announcement of special dividends. 

  • An announcement of special dividends (with proceeds from the POS sale) should drive share price closer to our target price as we believe the market has yet to price this in.




Edison Chen UOB Kay Hian | http://research.uobkayhian.com/ 2016-09-27
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.835 Same 0.835



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