RHB Securities 2015-08-11: NeraTelecommunications NeraTel - 2Q15; Supported By Respectable Dividend Yield. Maintain NEUTRAL.

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NERATELECOMMUNICATIONS LTD N01.SI

Supported By Respectable Dividend Yield 

• NeraTel posted a positive 2Q15, but 1H15 was still below expectations mainly due to higher admin costs from expansion. 
• We lower our FY15F NPAT by 4.7% to SGD16.2m, which results in a lower DCF-based TP of SGD0.64 (from SGD0.66, 3% downside). 
• Its orderbook of SGD125.6m is 20.6% higher YoY. 
• Maintain NEUTRAL as NeraTel’s dividend payout is still healthy with a respectable 6.1% yield at current price levels, while its long-term outlook remains positive. 

 Positive 2Q15 but 1H15 still underperforms. 

• Nera Telecommunications’ (NeraTel) 2Q15 revenue grew by 10.6% YoY, as sales across sectors increased, notably its payment solutions (PS) segment which saw revenue surging by 31.1% YoY to SGD12.5m. 
• Telecom segment’s sales, on the other hand, grew by 7% YoY to SGD17.6m. 
• As a result of its expansion into Myanmar and Vietnam, distribution and selling and the administrative expenses rose 6.3% and 24% YoY respectively. 
• Overall gross margins increased slightly to 32.8% from 32.3% in 2Q14, due to a change in the sales mixture of equipment with higher margins. 

 Higher interim dividend and debt. 

• The company announced an increment of 0.50 cent (SGD) in its interim dividend for FY15 to 2.50 cents. 
• However, it is worth-noting that debt has increased by SGD10.6m in 2Q15, as NeraTel looks to change its capital structure composition. 
• Management has highlighted that it will pay out excess cash and manage its debt exposure accordingly with a maximum of 25% net gearing. 
• We expect NeraTel to be able to sustain a 6.1% dividend yield for FY15. 

 Long-term outlook still positive. 

• Management will continue to move from a “box pusher” to a “multi-domain and solution” entity. 
• The group will continue to focus on providing end-to-end wireless infrastructure networks (WIN) including distributed antenna system (DAS) in-building coverage. 
• Furthermore, the company has made inroads into the micropayment systems solution locally, especially in the private transportation sector. 
• In addition, NeraTel’s overall orderbook still stands at SGD125.6m, up 20.6% YoY. 
• Maintain NEUTRAL as its dividend payout is still healthy with a respectable 6.1% yield at current price levels, while its long-term outlook remains positive.

Jarick Seet | http://www.rhbgroub.com/ RHB Securities 2015-08-11

NEUTRAL Maintain NEUTRAL 0.64 Down 0.66