Global Invacom Group - RHB Invest 2016-07-11: Turnaround Firmly In Place

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GLOBAL INVACOM GROUP LIMITED QS9.SI 

Global Invacom Group (RAD SP) - Turnaround Firmly In Place

• We firmly believe that its subsidiary SWG’s turnaround is solid after our US visit. 
• Major changes have been made, including the restructuring of its key management team, manufacturing line structure, processes and layout. This has led to SWG gaining a new customer, one of the largest telecommunications providers in the US. The latter could become a major customer, as it looks to procure different sizes and types of satellite dishes. 
• Maintain BUY with a SGD0.28 TP (152% upside), implying a 7x FY17F P/E.

Restructuring of key management, factory line and processes. 

• Since procuring Skyware Global (SWG) in late 2015, Global Invacom has realised several one-off costs relating to this acquisition:
  1. During our visit, we met with the new management team that has been put in place.
  2. Other than that, major changes have also been made to other key positions in the organisation. In the last few years, the quality of the products has been fairly dismal, resulting in the loss of a few key customers like Viasat and Echostar, as seen from SWG’s significant drop of revenue from >USD120m to USD50m. As a result, a new manufacturing line layout and its processes have also been implemented, to ensure greater efficiency.
  3. Lastly, new quality and maintenance processes have also been added to improve the quality of the output. 

Building solid foundations and regaining customers’ confidence. 

• With these major changes made above, customers have given them very positive feedback and are impressed by the change in such a short period of time. In fact, we understand that SWG is already in talks with certain ex-key accounts to resume the supply of satellite dishes, which could significantly boost its revenue and be positive for Global Invacom, especially in FY17.

New key customer gained and expansion of products supplied. 

• We understand that it has gained a new key customer, one of the largest telecommunication providers in the US and will be supplying 5,500 1.8m KU type satellite dishes. Production has already started with the supply of about 275 dishes/week. We expect this project to be worth about USD3m. 
• In addition, the new customer has also expressed positive feedback and that places SWG in the forefront as a supplier for its future business needs. We believe that this customer could potentially be one of 

SWG’s key customers going forward.

• Solid turnaround in place – bright prospects ahead. We firmly believe the turnaround is solidly in place, especially after our visit to SWG. We think that it is likely to benefit from the launch of the new satellite Jupiter 2 at the end of 2016; as well as the technology change by its major customer Echostar – which has also cut down working partners to two, from four. 
• Maintain BUY with a SGD0.28 TP, implying 7x FY17F P/E. Key risks are the delays in technological change and customer orders.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2016-07-11

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.28 Same 0.28