Global Inv    Last:0.125   -

Global Invacom, a satellite play

1 talking about global investment another talking about global invacom.. ape la abang...

 

Think no hope liao. From initial $0.20++ cents dropped until today. If can sell, sell it better at least can eat chicken chop or go to ktv happy hour

 

This one dropped till no eye see. From above $0.04 to cureent $0.028 in weeks because placed under watchlist.
Watchlist got 3 years lah. Sell as if it is going to be delsited tomorrow
Today first day green shoot.
Looks good from the charts for bottom fishing (technicals only)
No target. Ownself see ownself judge

 

Few more contracts in pipeline I believe, very secretive projects,u watch the price can only up slowly, under control by big players, uptrends for sure

 

Fund mgrs r gradually moving up the share price to its market value, now still undervalued, tgt price abv 0.4$

 

We scoured the Singapore small-cap space and discovered this net cash company with decent fundamentals. Global Invacom (SGX: QS9) is a worldwide leader in satellite broadcast solutions, utilising its 61 patented (with another 53 pending) technology in manufacturing satellite dishes. The products are used by telecoms, media, aviation and defense industries.

How does the industry work?
If you are a media broadcaster, your media content (radio, streaming TV etc) would be compressed and beamed up to satellite stations. Satellite dishes, installed at buildings, would receive the content of varying wavelength, and be " decoded" before being translated onto the pixelated TV screens. Internet that we use today are mainly transmitted through cables laid thousands of miles across oceans. For large countries such as Indonesia and China, some of the under-developed villages are not able to have access to the world without land-based fibre-optic cables connecting them. Hence, products of Global Invacom come into demand, as these villages just need a TV set and a satellite dish to receive content. Major customers of the company are SkyTV, Dish Network and Astro.

Why the company is interesting at this price?

1. Full year earnings to reverse last year' s loss, translating into dividends for shareholders
2. Net cash company that may boost net earnings should it pare down its debt. As of the latest financial quarter 1Q17, the company has USD 6.3m in debt, but sits on USD7.6m cash. Average interest expense of 8.3%, or USD0.5m can be saved should it deleverage. This interest saving represents approximately 1% increase in dividend yield.
3. Well-positioned to capitalise on new developments. Management is optimistic of its products that serve 32 stacking channels, and have been on trial with several clients. We expect substantial improvement in earnings to the tune of USD2.7m for the full year. A competent set of 2Q17 results are likely to catapult it into space.
4. Invacom invested close to USD4m last year in R& D, the highest amount in the preceding five years. We expect the company to reap the benefits of its R& D expense this year. We expect the patents to be monetised in future periods, while it tapers its R& D expense to 2.5% of Satellite Communications revenue.
5. Valuation support at $0.171, assuming 0.5% perpetual growth (vs industry estimate of 5.1% between 2014 and 2019) and WACC of 12.5%.
6. Deep-value should it be broken up and sold in pieces. At 1x net tangible asset value, Global Invacom would be worth S$0.205 a share. This is a distressed scenario that assumes no value is created, and that the 61 patents are useless. 1Q2017 did not show any indication of such.
7. Our underpinning valuation method is discounted cash flow, which yields similar intrinsic value at SGD0.205 per share. We relied on a set of conservative estimates. For examples, our perpetual growth for the company is 2% (well below industry average) and EBIT profitability of its core Satellite Communications segment, which makes up 86% of its total revenue in 2016) to contract from 7.7% in FY16 to 2.5% in FY21e. We have not factored in the cost saving should the company pare its leverage or negotiate long-term borrowing arrangements that reduce interest expense.
8. Foreign exchange gains, which will benefit FY17e numbers. Manufacturing base in the UK records British pound costs, while products transact in US dollar. Continued weakening of British pound, on Brexit concerns, boost earnings of Global Invacom.

There are risks to investing in Global Invacom. Ultimately, it is a manufacturing company. Customer de-stocking and inventory obsolescence will have an adverse impact on its financials, as was the case in FY16. Could there be a repeat? Definitely, but we do not see it as a near-term impediment to our fair value. 

Management has the tendency of over-paying in an aggressive bid to expand its presence. This has resulted in impairments over the last few years. We would prefer management to consolidate its position internally, streamlining costs and seek areas of competitive advantage before acquiring horizontally, for the sake of growing revenue. It is a lesson reflected in share price, which investors have punished the stock from SGD0.41 in January 2015 to SGD 0.14 by the end of 2016. What an expensive ego-boost by being overly-bullish on targets, and a secondary listing in London AIM, giving investors another avenue to slam the stock.

The company is thinly-traded, which may have significant price volatility. While we may have accounted for it with a beta of 1.2, there may be shortcomings in valuing risks based on CAPM.

Global Invacom trades at 12.6x FY17e earnings, comparatively cheaper than similar manufacturing companies such as Valuetronics (SGX: BN2) and Venture Corp (SGX: V03) at 13.5x and 17.6x, respectively. The comparables have book value below market value, indicating that outright sale of net assets may not fetch as much as what the share prices suggest the companies are worth.

Hence, we believe Global Invacom, at current SGD 0.175 is backed by its balance sheet, unless management does not learn from its past lessons and screws investors up time and again.