Addvalue Technologies Ltd - NRA Capital Research 2018-04-25: Delivers With First IDRS Contract

ADDVALUE TECHNOLOGIES LTD SGX: A31

Addvalue Technologies Ltd - Delivers With First Idrs Contract

Addvalue Technologies Ltd announced today that it has entered into an agreement with a customer for the customised design and supply of Inter-Satellite Data Relay System (IDRS) terminals to be installed on the Customer’s fleet of Low Earth Orbiting satellites. The multi-satellite constellation will be used to provide enhanced data gathering services for clients and the IDRS terminals will be delivered progressively to match the Customer’s launch schedule.

Low earth orbiting satellite constellations have to be relatively large to have extensive coverage of the earth. For instance, Iridium’s Next constellation has about 75 satellites. If Addvalue’s Customer is launching a 50-satellite constellation, the contract will likely bring in revenue of about US$10m in FY19 – FY20 assuming pricing of US$0.2m per IDRS module, after volume discount, and delivery in 2019.

Assuming 2GB of data consumption per satellite per month, the potential airtime charges could work out to about US$0.5m per month or US$6m per year for 50 satellites.
Addvalue is currently finalizing the airtime agreement with the Customer to be announced in due course, possibly in conjunction with Inmarsat, which will raise Addvalue’s visibility.

Addvalue had announced earlier that it has been contracted to study the feasibility of deploying its IDRS terminals in other space applications.
Other than installing the terminals in LEO satellites, another potential use of the IDRS is in communication during rocket launches. If true, the terminals probably would have to be tested for temperature and vibration tolerance.

Since the group’s signing of the agreement with Inmarsat to jointly offer the IDRS service in August 2017, preparation work was lengthened by learning costs, e.g. security clearance and cybersecurity checks. Designs also had to be changed to the Customer’s specification which took time. With the operating procedures set out, we reckon that future contracts will take less time to finalize.

Addvalue’s financial performance for 9M18 ended 31 December 2017 was affected by lower sales of conventional terminals and are not reflective of the growth potential of the newer IDRS business. The company expects 4Q18 revenue to be higher than that of any of the first three financial quarters of FY18 and the inaugural IDRS contracts will help to drive growth for the financial year ending in March 2019.
We estimate Addvalue to be worth 7.9 cents per share or at S$140m, as per our previous report, which is reasonable, given the contract win and Addvalue’s status as the sole IDRS provider today.

Liu Jinshu NRA Capital Research | http://www.nracapital.com/ 2018-04-25

SGX Stock Analyst Report NOT RATED Maintain NOT RATED 0.079 Same 0.079

* The report is produced by NRA Capital under the ‘NRA Research Scheme’ and NRA Capital has received monetary compensation for this valuation report.