Neratel

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Attended the AGM today. Nothing earth shattering to report. The things that jumped out at me :

1. The company continue to be very focused on growing stable "recurring sales" (basically the payment solutions / service / leasing revenue) which makes sense given that the market will value that earnings stream at a higher multiple.

For 2014, this has now grown to 35% of revenues (versus 31% in 2014), so it is starting to become significant. The downside of this growth is that the leasing business is capex intensive. It also sounds as though margins are lower but the company argues that margins will rise over time as they grow their scale (they now have more than 300,000 payment terminals installed).

2. When asked where growth would come from (given that revenues have been fairly flat over the last few years), the CEO responded that it would mainly be from geographical diversification. He cited some progress in Myanmar but didn't elaborate on Nigeria where they have added a sales office a year or so ago.

3. The company is keen to be seen as a "solutions provider" that is able to solve clients' problems by integrating the best hardware and software in the market (as opposed to pushing a product). The benefits of this strategy is that margins are higher. They argue that, because they are independent and agnostic as to which equipment or software to market, they are able to deal with more clients (eg they work with all three Telcos in Singapore).

4. Their intention to get more involved with cloud based technology was reiterated quite a few times. They also mentioned that the increasing relocation of datacentres to Singapore provides opportunities. Antivirus software was also mentioned a few times.

5. The basic message is that we now want to receive more info faster through multiple devices and Neratel is trying to position itself to be the engineer that can come up with solutions to ensure that the hardware and software required for this is integrated.

6. Wrt the large increase in receivables for 2014, the company ascribes this to a major contract in Malaysia that they decided they had to win for strategic reasons and where the payment terms had to be longer than usual.

7. Wrt "past due but not impaired" receivables, they explained that their standard payment terms are 30 days and hence any receivable longer than that gets classifies as "past due but not impaired". They are not concerned about getting repaid.

8. Although Neratel operates in quite a few countries, their business is the same in all of these countries. This means that they do have economies of scale when it comes to purchasing equipment (ie can get bigger discounts) and this gives them a competitive advantage over smaller players that only operate in one country.

My overall impression is that the company is trying to generate more recurring revenue (which is positive) and has a number of new initiatives (eg improving the Wifi or reception in buildings, cloud related...) to grow revenues but, so far, they are still relying on finding new countries and, unfortunately, so far, this has not successfully grown overall revenues over the past few years. One year, one country is big, the next it is another etc etc. The good news is that, as a portfolio of countries, revenues are stable (and profits as well), the bad news is that we are not really seeing revenues moving to the next stage.

It is a nice, well run company with a good dividend yield (and a long track record of paying 4 cents p.a.) but it is difficult to see where the next catalyst for the share price will come from. My guess is that it will be either through a significant increase in the Service / Leasing revenue which will allow a re-rating of the stock to a higher multiple. In the meantime, enjoy the dividend.

Vested.
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From your account, it doesn't seem they have reiterated their edge. They basically listed out that they aim to be a big systems integration company, but there are many such cases like ECS, dimension data, not to mention the NCS and ST Electronics. It is competitive.

if they say their sales channel with the telcos means that they most likely ALWAYS get the business, then it amounts to something.

i am also of the concern if the payment solutions is just spinning a higher valuation story as i believe it generates rev but may not translate to a substantial portion of free cash flow.
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Drizzt - nera expertise is not the same field as ecs, dd, ncs or st. Think of them as specialists in serving telco service provider networking, whereas the others u mentioned tend to be more enterprise IT solution providera.

That being said, my opinion is that the Capex expenditure for telcos will be shrinking regionally and that will impact Nera.

(some disclosure: I work in a telco-it firm.)

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I remember recurring income comes from focus on payment service provider area on leasing.It will be interesting to know their adoption and growth in Myanmar.

Just my Diary
corylogics.blogspot.com/


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(29-04-2015, 05:48 PM)thor666 Wrote: Drizzt - nera expertise is not the same field as ecs, dd, ncs or st. Think of them as specialists in serving telco service provider networking, whereas the others u mentioned tend to be more enterprise IT solution providera.

That being said, my opinion is that the Capex expenditure for telcos will be shrinking regionally and that will impact Nera.

(some disclosure: I work in a telco-it firm.)

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thor666 thanks for sharing your domain knowledge. if what i stated are not good competitors then what would be worthy ones?

i think the funny thing is how much payment systems do they need to buy first before we start seeing free cash flow flow in. i suppose you can't buy a whole bunch of them when they cannot forecast their business.

a shame they hide this within their infocomm segment.
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(29-04-2015, 06:56 PM)Drizzt Wrote: thor666 thanks for sharing your domain knowledge. if what i stated are not good competitors then what would be worthy ones?

i think the funny thing is how much payment systems do they need to buy first before we start seeing free cash flow flow in. i suppose you can't buy a whole bunch of them when they cannot forecast their business.

a shame they hide this within their infocomm segment.

Some of their particular brands under IT solution and FSO - my understanding is that there isn't any worthy competitors, hence their competitive advantage (in the world of IT, spending time and money on niche, high cost branded products entails risk especially for second movers. By aligning to the right niche technology brand, the SI would then be able to charge a premium via services.) I suppose a player like Singtel (I don't work there) have "Lao jiaos" who are maintaining legacy network systems, this becomes more of an insourcing vs outsourcing decision rather than competition. Most of the niche is in large scale network equipment for telcos. As mentioned, I do think the trend is on lowered CAPEX from telcos and this will bite into their margins.

On the next point, I am not familiar with their current payment systems (I know they are quite good at POS but it should be rather commoditized) so I shall refrain from commenting.


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Nera Tel posts 33.8% drop in 1Q profit after tax to $3 million

By PC Lee / theedgemarkets.com | May 4, 2015 : 6:34 PM MYT
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SINGAPORE (May 4): Nera Telecommunications, the telecoms, network and payment solutions specialist, reported a 33.8% drop in 1Q profit after tax to $3 million from $4.6 million a year ago.

Revenue for the three months to March rose 3.6% to $42.1 million due to higher turnover from the Infocomm business segment, although this was partially offset by lower turnover from the Telecom business segment.

Turnover for the Infocomm segment increased 26.8% to $34 million. Turnover for Network Infrastructure segment increased 16.6% to $23.4 million from higher sales of network equipment to the enterprise market sector. Turnover for Payment Solutions business increased 57.1% to $10.7 million due to higher sales revenue from point-of-sale terminals.

Gross profit for 1Q however decreased 9.2% to $14.1 million from a year ago mainly due to higher proportion of equipment sales which has lower margins.

Gross margin percentage also declined to 33.5% from 38.2% due to the Infocomm business.
In 1Q, Nera Tel said it took in $57.6 millions in orders, an increase of 1.3% compared with the $56.8 million a year ago due to significant orders received from the telecom sector.

Nera Tel closed unchanged today at 68.5 cents.
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will there be a sell down today?
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(05-05-2015, 07:54 AM)Happymeowmeow Wrote: will there be a sell down today?

you got it right. Drop 5%. Not vested...Smile
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Since Eltek sold the entire stake to Asia System Ltd (Northstar) in 2012, I think Mr. Samuel Ang Siong Kang (CEO/President) also sold all his 1 mil shares...

If this is true, then there will be top level management change soon.

Will this change has negative impact to Neratel future?

Anyone has better info to share?
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