Global Invacom Group - A Robust FY17 Ahead
- With increased volumes and wider margins from its new-generation products, we expect Global Invacom Group (Ginva) to bounce back into profitability in FY17.
- We also expect its margins to keep on improving as it continues to roll out new-generation equipment. As such, we keep our BUY recommendation.
- Our TP of SGD0.26 (from SGD0.25, 71% upside) is based on 12x FY17F P/E. For FY16, it would have reported earnings of USD0.5m, ie returning to profitability, without one-off impairments and restructuring costs from its China operations.
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.
- Ginva is one of two suppliers for this new-generation product to Echostar, and we believe that it should benefit more from this replacement cycle. As such, we believe its sales volume will grow after the product was rolled out in 4Q16.
- We also expect higher margins for the new model, compared to the current version. Ginva also expects to deploy the DCSS technology across its low-noise blocks (LNBs) for all customers and territories over the next 12 months.
Returning to profitability.
- Without the one-off impairments and restructuring costs from China, Ginva would have reported a FY16 net profit of USD0.5m, which steers it back into the black.
- We are of the view that there would be long- term cost savings from its restructuring exercise.
- A key downside risk to our estimate and call is the delay in customer orders.
Still a BUY.
- Due to the one-off cost involved, FY16 NPAT was dragged down. However, we continue to expect significant YoY NPAT growth ahead.
- With higher margins and volumes from its new-generation products, we maintain BUY on the stock, with a slightly higher DCF-backed TP of SGD0.26 implying a 12x FY17F P/E.