Neratel - RHB Invest 2016-08-04: Special Dividend Coming Sooner Than Expected

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NERATELECOMMUNICATIONS LTD N01.SI 

NeraTel - Special Dividend Coming Sooner Than Expected

• Despite dismal results due to forex loss, we are more optimistic, as:
  1. Telecom and Network Infrastructure business revenue fared better, up 19.3% and 10.1% YoY in 1H16 respectively;
  2. Underperforming POS business is to be sold off;
  3. We expect a special dividend of at least SGD0.16 by end-September.
• Total dividend yield will likely shoot up to 26%, with its recurring 2 cents dividend. We think current price levels are very attractive; maintain TRADING BUY from a DCF-backed TP of SGD0.80 (19% upside).

Nera Telecommunications’ (Nera) 1H16 order intake increased 29.3% YoY

• Nera Telecommunications’ (Nera) 1H16 order intake increased 29.3% YoY to SGD61m, with Singapore remaining the dominant contributor. 
• As Nera is expanding into overseas markets, where the project values are larger, management is confident that a substantial order intake will be recognised.

Payment Solution (POS) business dragging down NPAT. 

• POS revenue declined by 52.1% YoY to SGD6.0m in 2Q16. By removing the revenue contributed by POS, during the same period, revenue will increase by 41.8%, improving NPAT. 
• Nera announced this business segment is to be sold off by 3Q16.

Potential special dividend to be distributed to shareholders. 

• With the announcement of the POS business sale agreement, we believe management may distribute the majority of the proceeds as dividends. The current estimation stands at 16 cents/share. 
• With a current dividend of 2 cents/share, FY16F dividend may sum up to 18 cents, representing a yield of about 27%.

Special dividends incoming; maintain TRADING BUY. 

• With the underperforming POS business to be sold off soon, we expect a special dividend of at least 16 cents by end-September, bringing total dividend yield for FY16F to around 27%. 
• We maintain our TRADING BUY from a DCF-backed TP of SGD0.80, implying 24x FY17F P/E.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2016-08-04

RHB Invest SGX Stock Analyst Report TRADING BUY Maintain TRADING BUY 0.80 Same 0.80