Comment on Results
Net profit of S$3.1m down 4.8% y-o-y but up 16.9% q-o-q was towards the lower end of our expectations mainly due to lower turnover in the telecom business segment. There were project delays in Srilanka and Thailand, which combined with equipment delays from the new factory of Nera ASA in Slovakia resulted in postponement of about S$10m worth of revenues to 3Q08.
Management assured investors that they have good project pipeline for 2H08. With S$5.7m in net profit for 1H08, we believe that Nera is on track to meet our FY08 forecast of S$12m. Operating cash flow was quite healthy at S$4.0m higher than net profit for the period. Total cash stood at an impressive S$39.5m after paying out S$14.5m in dividends to the shareholders during 1Q08.
Recommendation
With broader market de-rating, we lower our target price to S$0.40 pegged at 12x FY08earnings (previously 15x FY08). With about 11 cents in cash, the share price is currently trading at reasonable excash PE of 7.2x FY08 earnings. While dividend yield of 8.6% is the key attraction of the stock, it is payable only once annually. We don’t see any major catalyst for the share price in the near term.
Maintain HOLD.
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