Global Invacom Group - Return To The Black Validates Turnaround
- The production and supply of Global Invacom (Ginva)’s new products to its largest customer commenced in Nov 2016. It also expects 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 the company to bounce back to being profitable in FY17. As expected, it returned to the black with a solid set of 3Q16 results.
- Maintain BUY, with a TP of SGD0.25, implying a 9x FY17F P/E.
Higher margins and volumes.
- Echostar (one of Global Invacom’s (Ginva) largest customers) has approved its 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, coupled with the fact that Ginva would benefit more from this replacement cycle, we expect its sales volume to grow once the product is rolled out in 4Q16.
- We also expect higher margins for the new model, compared to the current version.
- Going forward, over the next 12 months, it is expected to deploy the DCSS technology across its low-noise blocks (LNBs) for all customers and territories.
Building solid foundations and regaining customer confidence.
- With these major changes, customers have given Ginva very positive feedback and are impressed by the change in such a short period of time. In fact, we understand that Skyware Global is already in talks with certain ex-key accounts to resume the supply of satellite dishes – which could significantly boost Ginva’s revenue and be positive for the company, especially in FY17.
One-off costs from closure of Shenzhen facility.
- Ginva is currently in the process of ceasing operations and closing its Shenzhen factory. It expects to consolidate all activities into its Shanghai factory after this. We believe 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.
- The key risk going forward with regards to its earnings is the delay in customer orders.
- Due to the one-off cost involved, we trimmed our FY17F NPAT by 7%, although we still expect significant YoY NPAT growth ahead. We firmly believe that Ginva’s turnaround is solidly in place, especially after our recent visit to SkyWare Global.
- We think that it is likely to benefit from:
- The launch of the new satellite, Jupiter 2, at the end of 2016;
- The technology change by Echostar, which also cut down working partners to two, from four.
- With increased margins and volumes from the new-generation products, we maintain BUY on Ginva. Our TP of SGD0.25 implies 9x FY17F P/E.
- Key risks include delays in customer orders.