Stock Analysis 9: Nera Telecom

Neratel makes money from 3 main segments:

Payment Solutions: Lease or sell POS terminals to clients and charge them rental/maintenance/percentage fee for every transaction made. This is recurring revenue, and growing due to rise in initiative to go cashless. It makes up about ~28% of their revenue now. Order in take went up to $50.4M from $41.3M.

Network Infrastructure: Cloud Services,IP/Optical/Broadcast Networks. Order in take went up to $95.5M from $84.4M.

Telecom: Mobile/wireless network coverage, radio transmission, 3g data offload and network performance systems. They plan to build up mobile coverage in major buildings in Indonesia to drive recurring revenue. Order in take went up to $71M from $67M YOY.

More Info from Fifth Person

Market Price (2015-3-28) = $0.65

*Based on full year 2014 earnings.

Earnings
Approx. EPS: $0.0448
Approx. DPS: $0.04
Payout Ratio: 89.3%

Total Revenue: $183M

Ratios

P/E: 14.5
Yield: 6.15% (Historical yield 5 to 10%)

Profitability

ROE: 25.53% [Avg for SG blue chips is 11.8%]
Asset Turnover: 1.28 [Avg for SG blue chips is ~0.5]
Gross Margin: 33.1%
Net Income Margin: 8.9%

Balance Sheet

Current Ratio: 1.61
Debt To Equity: Net Cash Position ($24M cash, $4.7M loan)
NAV: $0.1684 (Not an accurate measure for a service company)
Free Cash Flow: 9878 - 7411 = 2467

Additional Info

Biannual distributions in Apr/Aug. $0.04 dividends sustained for the past 5 years.

Personal Opinion:

+ It passes all the criteria of a dividend machine, except being a smaller cap company.
+ Better book order, flat profit but price went down 20% due to "dividend hit".
+ Strong ROE and robust cash flow, riding on the retail boom.

- It does not have a "true and strong economic moat" yet. There are high switching costs, but it does not yet have a wide enough distribution network.
- Management has expressed strong competition from all sectors in the future.

I think I might take a nibble once it stabilizes...

References:
OSK DMG