Thursday, February 7, 2013

Review of Neratel results FY2012

Nera Telecommunication reported Q4 results which saw them going lower 5.3% on its revenue QoQ but an impressive 14.5% increase YoY due to higher turnover from the Telecom and Infocomm business segments. Operating expenses increase slightly YoY due to the higher payroll and admin charges. This resulted in a 25.3% Gross profit margin increase YoY from $44.6m to $55.9m.

For the full year ended 31 December 2012, the company has announced a dividend of 4 cents, payable to the shareholders in May. This translates to 6.7% yield based on the latest closing price of $0.59.

The best thing about Neratel is it is a cash cow company. It's cash and cash equivalent amounted to $43.7M while trade receivables amounted $56.1M out of a total $128M of current assets. Based on last year similar 4 cents payout, the company paid out approximately $14.5M from its cash flow from financing activities. The company has also an almost zero debt financing ($7K debt repayable as of 31 Dec 2012) which means that they can use the rest of their cash after dividends for further growth in their telecomm and infocomm segments. NAV is 18.2 cents and PE is approximately 11.

Given a relatively strong expected results, I would expect the market to react only fairly to the news. This is due to some investors like myself who would expected higher dividends given its strong cash flow. A 5 cents dividend would translate nicely to 8.5% yield at the latest closing price of $0.59. This would mean $18M payout from the company's cash flow. The company is clearly capable of doing that and it would give a massive boost to the company's share price into breaking the uncharted territory of $0.60. Nevertheless, a 4 cents dividend is still reasonable given the company's citing competition awareness in its outlook and strategy.

Will we see another takeover in the near future? Maybe so. And hopefully this time we'll see a much higher bid than the two previous bid takeover.

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