Nera Telecommunications (NERT SP) - UOB Kay Hian 2016-10-27: Expect A Smooth Transition Ahead

Nera Telecommunications (NERT SP) - UOB Kay Hian 2016-10-27: Expect A Smooth Transition Ahead NERATELECOMMUNICATIONS LTD N01.SI

Nera Telecommunications (NERT SP) - Expect A Smooth Transition Ahead

  • Mr Beck Tong Hong will take over as acting CEO of NeraTel in 18 months as Mr Samuel Ang, the former CEO, has tendered his resignation for personal reasons. 
  • Mr Beck headed NeraTel’s Network Infrastructure business and we believe that he was instrumental in creating exemplary results for the unit in 1H16. 
  • We now expect the hefty special dividend to come together with 3Q16 results, translating to 25.9% dividend yield for 2016. 
  • Maintain BUY with target price unchanged at S$0.835.


WHAT’S NEW


CEO to leave the company 18 months later. 

  • Mr Ang Seong Kang Samuel, CEO of NeraTel, has tendered his resignation on 24 Oct 16. In accordance with his contractual obligations, he will continue to be employed by the company for a period of 18 months to facilitate transition of leadership. 
  • On the other hand, the board of NeraTel has appointed Mr Beck Tong Hong to serve as acting CEO in the interim.

New acting CEO promoted internally. 

  • Mr Beck has served as the head of NeraTel’s Network Infrastructure business unit for more than three years, responsible for both topand bottom-lines of the business globally (key markets include Singapore, Indonesia, Malaysia, Thailand, Philippines and Myanmar). 
  • Prior to that, he served as head of four key divisions in PT Smartfren Telecom (FREN IJ, NOT RATED) and spearheaded the Singapore Digital/Mobile Commerce program while in SingTel (ST SP,BUY, TP S$4.53)


STOCK IMPACT


Personal decision of former CEO; new acting CEO qualified to drive the group forward. 

  • Our check with NeraTel’s management indicates that the former CEO resigned purely for personal reasons. The fact that Mr Ang will stay for another 18 months also indicates that it will be a peaceful transition ahead. On the other hand, based on the new acting CEO’s background, we opine that he is the right man in driving the group forward.
  • Between NeraTel’s two remaining businesses (telecommunication and network infrastructure), network infrastructure has been the key growth driver for the group with an impressive 29.3% yoy increase of order intakes in 1H16 (vs telecom’s 1.3%). 
  • We believe that Mr Beck was instrumental in making this happen.

Special dividends expected with 3Q16 results, resulting in 25.9% 2016 dividend yield. 

  • We now expect the company to announce the hefty special dividend along with its 3Q16 results announcement. 
  • Our expectation for 2016’s full-year dividend remains unchanged at S$0.19/share, translating to an attractive 25.9% 2016 yield.


VALUATION/RECOMMENDATION


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

  • The new acting CEO remains optimistic over NeraTel’s business outlook, particularly for its network infrastructure business. 
  • Given time, the remaining business will grow to fill the gap of the POS business as the management team now can focus their efforts on its core network solutions business. 
  • Our SOTP-based target price of S$0.835 remains unchanged.


SHARE PRICE CATALYST


Announcement of the special dividends. 

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




Edison Chen UOB Kay Hian | http://research.uobkayhian.com/ 2016-10-27
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.835 Same 0.835



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