Global Invacom Group - RHB Invest 2015-12-02: Gearing Up For a Turnaround In FY16

GLOBAL INVACOM GROUP LIMITED QS9.SI

Global Invacom Group (RAD SP) - Gearing Up For a Turnaround In FY16

We believe share price and EPS have hit rock-bottom and expect a strong FY16 turnaround on a demand surge from new satellite launches, cross-selling of products and new generation items, and Skyware’s turnaround.
Maintain BUY with a SGD0.40 TP (167% upside, 10x FY16F P/E) on insider purchases and orders resumptions from major clients.
Currently valued at 1.9x ex-cash FY16F P/E, the stock has also been way oversold.

Global Invacom’s (GInva) FY15 performance may be dragged down by a delay in sales to major customers.
This is due to a change in procurement procedures and a few one-off costs such as the acquisition of Skyware Global (Skyware), which is currently in a loss-making position.
However, we expect GInva to outperform with c.4x NPAT surge in FY16 from a low base. This is on:
1. an expected increase in demand on major customers launching two new satellites in FY16,
2. Skyware close to breaking even and possibly being profitable by FY16,
3. GInva being able to supply dishes and lownoise block down convertors (LNBs) to its largest customer, and
4. new generation products.

Serial System Ltd, a strategic partner that is assisting GInva in improving its electronics components procurement, recently increased its stake in the firm to > 5%.
CEO Derek Goh has also – on a personal level – bought shares to bump up his deemed interest in GInva to 5.14%.
We see this as a vote of confidence in the company and on its potential 2H15 turnaround.

Due to market weakness in the past few months and its 1H15 profit warning, GInva has been severely sold down to current levels of SGD0.15 (20 Jun high: SGD0.54).
Going forward, we expect the firm to outperform with a potential strong turnaround in FY16. In addition, management also highlighted that share buybacks are likely to continue, especially if it has an acquisition target.
As the stock is currently trading at 3.3x FY16F P/E (with 50% of its market cap made up of net cash), we believe that GInva has been oversold. Coupled with the insider buying, this points to a strong vote of confidence and the resumption of orders from major customers.
These factors lead us to maintain our BUY call with a SGD0.40 TP (10x FY16F P/E).

Jarick Seet RHB Research | http://www.rhbinvest.com.sg/ 2015-12-02

RHB Research SGX Stock Analyst Report BUY Maintain BUY 0.40 Same 0.40