NeraTel - RHB Invest 2016-10-27: Undergoing Transition; 3Q16 Special Dividend Likely

NeraTel - RHB Invest 2016-10-27: Undergoing Transition; 3Q16 Special Dividend Likely NERATELECOMMUNICATIONS LTD N01.SI

NeraTel - Undergoing Transition; 3Q16 Special Dividend Likely

  • Neratel announced that its CEO, Samuel Ang has officially resigned as of 24 Oct 2016. However, he will help to facilitate the transition of leadership for the next 18 months till 23 April 2018. Beck Tong Hong, formally the head of the remaining Network Infrastructure business unit will serve as acting CEO in the interim. 
  • After speaking to the new management, we understand that the company’s direction going forward would not change. 
  • In addition, it has also mentioned that the excess cash from the sale will likely to be returned following the announcement of its 3Q16 results. 
  • Maintain TRADING BUY with an unchanged DCF-backed TP of SGD0.80, implying 24x FY17F P/E (10% upside).


Special dividend still likely in 3Q16. 

  • Management guided that the plans to reward shareholders have not changed. The company is likely to return any excess cash from the sale of its POS business, not used as working capital, to its shareholders in the upcoming 3Q16 results.


Special dividend of between SGD0.16-0.20 a share. 

  • We expect a special dividend of at least SGD0.16, with dividend yield will likely shoot up to 25%, with its recurring 2 cents dividend.


No change in company direction. 

  • Despite the change in CEO, we understand that there ought to be no change in the company’s direction going forward. Mr Ang would still help to facilitate the transition of leadership for the next 18 months till 23 April 2018. 
  • The company would still be looking to grow its network infrastructure business through organic means, with the acting CEO, Mr Beck, leading the team.


Acting CEO has proven track record. 

  • Mr Beck was formally responsible for the top and bottom lines for this business globally. His job areas included sales, business development, presales, products-solutions-and-technologies, and service delivery. He was also tasked to identify opportunities to expand the business into the Australia-New Zealand (ANZ) as well as Europe, the Middle East and Africa (EMEA) regions, through both organic and non-organic means.


Potential sale of the network infrastructure business. 

  • Like all private equity funds, we think that Northstar Group (Northstar) would eventually realise its investment gains on the remaining network infrastructure business of Neratel. As a result, we think that a potential sale of this business is highly possible in the next one or two years, which Northstar would be keen to liquidate if the price is right.


Special dividend incoming, maintain TRADING BUY. 

  • After speaking to the new management, we understand that the company’s direction going forward would not change. 
  • In addition, it has also mentioned that the excess cash from the sale is likely to be returned following the announcement of its 3Q16 results. 
  • We expect a special dividend of at least 16 cents by, bringing total dividend yield for FY16F to around 25%. 
  • We maintain our TRADING BUY with an unchanged DCF-backed TP of SGD0.80, implying 24x FY17F P/E.





Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2016-10-27
RHB Invest SGX Stock Analyst Report TRADING BUY Maintain TRADING BUY 0.80 Same 0.800



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