Lantrovision Ltd - UOB Kay Hian 2015-11-12: Rising Back To Life, 1QFY16 Net Profit +38.7%

LANTROVISION (S) LTD Q7W.SI

LANTROVISION LTD (LANT SP) - Rising Back To Life; 1QFY16 Net Profit +38.7%

Maintain BUY with a slightly lower DCF target price of S$0.635 as we update the group’s cash position to reflect the payout of dividend in Nov 15, and increase our discount rate given the greater macro uncertainties.
Compelling valuation. At its current price, Lantrovision is trading at a compelling ex-cash FY16 PE of 3.1x

1QFY16 net income rose 38.7% yoy to S$3.8m, forming 34% of our full-year forecast.
Lantrovision recorded higher revenue due to more installation projects in Hong Kong and more trading sales in India.

Data centres continue to sprout in Asia with the increased penetration of cloud-based services and the Internet of Things. In Singapore, Singtel announced the construction of a S$400m data centre in Jurong in Oct 15. In Hong Kong, as part of a push to develop the city into a data centre hub, the government has earmarked a few hectares of land in Tseung Kwan O for the development of data centres. The government also introduced measures in 2012 to encourage conversion and redevelopment of industrial buildings/lots into data centres. Since then, the government has received 13 applications, of which 12 have been approved.

With 1QFY16 off to a good start, we understand that the momentum has continued into Oct 15, as the group increased inventories in anticipation of upcoming projects.

Lantrovision generated positive free cash flow of S$0.8m in 1QFY15, which was a significant improvement from the negative free cash flow of S$3.4m in 1QFY14 as the group stepped up its effort to improve debt collection.

After accounting for the S$0.013 dividend that will be paid in Nov 15, Lantrovision currently has a net cash position of S$84.6m (S$0.314/share).

While Lantrovision does not have a fixed dividend policy, we see its stronger commitment to rewarding shareholders as evident from its dividend payout in the last two years. With 1QFY16 showing promising signs of a good year ahead, there may be potential for higher dividends should the excellent performance continue through the year.

Keep our forecasts relatively unchanged, as we tweaked our gross margins slightly lower to account for rising labour costs but increased our revenue growth forecast to account for the higher level of business activities.

Loke Chunying UOB Kay Hian | http://research.uobkayhian.com/ 2015-11-12

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.635 Down 0.655