Global Invacom Group - RHB Invest 2016-10-20: Earnings To Rebound On New Supply Approval

Global Invacom Group - RHB Invest 2016-10-20: Earnings To Rebound On New Supply Approval GLOBAL INVACOM GROUP LIMITED QS9.SI

Global Invacom Group - Earnings To Rebound On New Supply Approval

  • Global Invacom (Ginva) has received approval for the supply of its new generation of Low Noise Block (LNB) products from its largest customer – Echostar
  • They are also the only one of two suppliers for this new generation of products to the customer. We are of view that this would be a key breakthrough in terms of earnings for the company given better margins and volumes, especially in FY17F. 
  • Maintain Conviction BUY with a PE based TP of SGD0.28 (67% upside).



Supply of DCSS technology approved by its largest customer. 

  • Its largest customer – Echostar, has approved Ginva’s supply of Eastern Arc Twin Generation 2 Hybrid (EA Twin Gen II) system which uses the Digital Channel Stacking (DCSS) technology. The EA Twin Gen II is used within a 16-tuner system, which enables a simpler installation with less cabling compared with other systems.


Significant breakthrough. 

  • The approval marks a significant achievement for Ginva, which has been reporting on its investments in the new generation LNB since 2014. This also confirms Ginva as a leading supplier of the latest satellite communications technology. 
  • The company is expected to deploy the DCSS technology across its range of new LNBs and should benefit systems that are currently in design and help drive approvals from other customers and territories.


Increased margins and volumes expected. 

  • As Ginva is one of the only two suppliers for this new generation of products to Echostar, we believe that the company would benefit more from this replacement cycle compared to previously where there were four suppliers instead of two. As such, we expect volumes to increase once this product is rolled out in November 2016. 
  • In addition, margins would usually be much higher for new models as compared to the current version that the company is supplying.


Turnaround concrete; strong earnings ahead. 

  • We are of view that the new supply contract is a key earnings breakthrough for Ginva, driven by better margins and volumes, especially in FY17F. 
  • We expect earnings to recover to FY13 and FY14 levels going forward. 
  • We are also optimistic that 3Q16 would be an earnings inflection point for the company and their earnings turnaround should be further validated by this approval.


Maintain Conviction BUY. 

  • We believe the company would likely benefit from the launch of the new satellite Jupiter 2 at the end of 2016, as well as the change in technology by their major customer - Echostar. 
  • Assuming no earnings drag from one-off costs, we expect Ginva to bounce back into profitability in FY16F, with the bulk of the earnings rebound to be seen in 2H16. 
  • Maintain BUY with a SGD0.28 TP, implying a 9x FY17F P/E. 
  • Key downside risk is the delay in customer orders.




Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2016-10-20
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.28 Same 0.280



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