Neratel - RHB Invest 2015-11-06: Negatively Impacted By Project Delays

SGinvestors.io

NERATELECOMMUNICATIONS LTD N01.SI 

Neratel - Negatively Impacted By Project Delays

• Neratel booked disappointing 3Q15 results with revenue falling 20.2% YoY to SGD39.6m while NPAT sank 43.3% to SGD2m on declines across all business segments, and project delays in Malaysia and Pakistan. 
• Maintain NEUTRAL with a DCF-based SGD0.55 TP (from SGD0.64, 7% downside). 
• This is after adjusting for a lower network infrastructure business contribution that results in an 11% fall for our FY15F NPAT. 

 Decline in network infrastructure business. 

• Major operators locally have delayed purchases to 4Q from 3Q previously. This has caused the decline in Neratel’s network infrastructure business. 
• 9M15’s order intake of SGD61.2m is 23.1% lower YoY. However, the company has received two large orders in 3Q15 from customers, which involves projects in Australia too. 
• In addition, Neratel also intends to focus its business more on data centres and cloud services, and hopes to derive more recurring income from these segments. 

 Wireless infrastructure network still stable. 

• Neratel’s order intake, at SGD64.2m, is 13.6% YoY higher due to customers in the Middle East and Africa. It also includes Petronas in Malaysia. Mobile operators are also increasing their data capacities as a result of rising data usage. This is also beneficial for Neratel. 

 An approved vendor in Singapore that does in-building coverage. 

• Starting from 4Q15, Neratel is to be invited by all three major operators locally for their in-building project roll outs. According to management, there are only 3-4 approved vendors currently in the local market. 

 Maintain NEUTRAL with a lower TP of SGD0.55. 

• Neratel’s total orderbook backlog remains strong. Management also expects its order backlog to exceed that of 2014’s levels. 
• Going forward, we expect a stronger 4Q15 as the delayed projects should be recognised during this quarter. However, we adjusted for lower contributions from the network infrastructure business, which resulted in an 11.1% decline for our FY15F NPAT. This results in our DCF-based TP to drop to SGD0.55 (from SGD64). 
• We maintain NEUTRAL on Neratel as it is backed by a reasonable FY15F yield of 6.3%.

Jarick Seet RHB Research | http://www.rhbinvest.com.sg/ 2015-11-06

RHB Research SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 0.55 Down 0.64