Addvalue Technologies Ltd - NRA Capital Research 2017-06-08: Collaboration With Established Satellite Maker

Addvalue Technologies Ltd - NRA Capital Research 2017-06-08: Collaboration With Established Satellite Maker ADDVALUE TECHNOLOGIES LTD SGX: A31

Addvalue Technologies Ltd - Collaboration With Established Satellite Maker

Enters satellite manufacturing circle with potential customer

  • Addvalue has announced that it will, supported by funding from EDB, send engineers to Argentina technology leader INVAP for technical training to enhance its manufacturing capability for space products, thus bringing itself significantly closer to the commercialisation of the IDRS.
  • INVAP has designed, built and launch six satellites and is the only Latin American company able to carry out complete satellite projects from concept to operation. 
  • Globally, Argentina is one of 11 countries with such capabilities and the government has budgeted S$250m annually for the development and launch of new satellites until 2027.
  • 2 Pipeline projects include low orbiting satellites for earth observation such as SAOCOM (two satellites to be launched in 2017 and 2018) and SABIA-MAR (two satellites to be launched from 2020). Therefore, there is the potential for Addvalue to sell its IDRS terminals to INVAP.

Inmarsat agreement likely to be forthcoming

  • The collaboration with INVAP which is developing its own satellites suggests that Addvalue will have to finalize its airtime distribution agreement with Inmarsat quick as interest in the IDRS grows.
  • Given that four months have passed since Addvalue signed the MOU with Inmarsat, we reckon that both firms will be able to finalize the agreement soon, e.g. within the next one to two months.

EBITDA turned positive in FY17; New orders secure FY18 outlook.

  • Addvalue’s revenue grew by 9% or US$0.9m to US$10.8m for FY17 ended March. Net loss shrank by 26% or US$1.2m to US$3.5m. Losses would have been lower if not for US$1.2m of non-cash write-offs (e.g. inventory and development expenditure), probably in relation to older products that are no longer relevant to growth. EBITDA has turned positive from negative US$0.7m to a positive US$0.3m in FY17.
  • In May, Addvalue announced that it has received a trial order of US$1.0m and is in discussion for a further US$3.5m of orders for its iFleetOne. If these discussions are successful, a solid revenue base would have been created to justify FY18 expectations.

Trading at reasonable 6.7x price-to-sales.

  • We have previously provided a potential valuation of 7.9 cents based on 1.687 billion shares. Currently, there are 1.77 billion shares outstanding. However, we are not amending fair value per share as the difference is immaterial relative to the growth potential we are expecting.
  • Technology companies tend to trade at high multiples. For e.g. Facebook and Tesla trade at 14.5 and 6.4 times their trailing 12-month sales in Nasdaq. In comparison, Addvalue trades at 6.7x FY17 revenue, which is reasonable as FY17 revenue excludes future contribution from the IDRS.
  • Our potential value of 7.9 cents translates to about 9.3x sales now. If Addvalue scales up to just US$20m of new annual orders from the IDRS within the next one odd year, our potential value works out to only 3.4x prospective sales.

Liu Jinshu NRA Capital Research | 2017-06-08
SGX Stock Analyst Report NOT RATED Maintain NOT RATED 0.079 Same 0.079