Global Invacom Group - RHB Invest 2016-11-14: Turnaround Validated, Back Into Profitability

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GLOBAL INVACOM GROUP LIMITED QS9.SI

Global Invacom Group - Turnaround Validated - Back Into Profitability

• As expected, Global Invacom (Ginva) steered back into profitability with a good set of 3Q16 results. The production and supply of new products to its largest customer is expected to commence in 4Q16. 
• Ginva is also expected to deploy its DCSS technology across its LNBs for all customers and territories over the next 12 months. 
• With higher margins and volumes from its new generation products, we expect Ginva to bounce back into profitability in FY17F. 
• Maintain BUY with a new TP of SGD0.25 (pervious SGD0.28, 45% upside).

Increased margins and volumes expected. 

• One of its largest customer – Echostar has approved Ginva’s Eastern Arc Twin Generation 2 Hybrid product, which uses Digital Channel Stacking System (DCSS) technology. 
• As Ginva is one of two suppliers for this new generation product to Echostar and we believe that Ginva would benefit more from this replacement cycle. As such, we expect an increase in volume once the product is rolled out in 4Q16. 
• We also expect higher margins for the new model compared to the current version. Ginva is also expected to then deploy the DCSS technology across its low noise block (LNBs) for all customers and territories over the next 12 months.

One-off costs from closure of Shenzhen. 

• Ginva is in the midst of the closure and cessation of its Shenzhen factory and is expected to consolidate all activities into its Shanghai factory. 
• We are of view that there would be long term cost savings from this exercise but a one-off cost of c.USD2.5m would likely be incurred in 4Q16. Key risk to earnings is the delay in customer orders.

Turnaround validated – Maintain BUY. 

• Due to the one-off cost involved, we tweaked our FY17F NPAT lower by 7%. However, we continue to expect significant YoY NPAT growth ahead. 
• With higher margins and volumes from its new generation products, we maintain BUY on Ginva with a slighter lower TP of SGD0.25 (from SGD0.28), implying a 9x FY17F P/E.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2016-11-14

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.25 Down 0.280