S$0.30 - DMX.SI
• 2Q2011 profit rose 46% yoy and 115% qoq to US$4.2mln, bringing 1H2011 profit up 50% to US$6.13mln, accounting for 31% of full year consensus estimate. With last 2 year 1H average accounting for 25-26% of full year profit estimate, 1H2011 performance would be slightly above expectations.
• Looking ahead, management remains cautiously optimistic of prospects due to the ongoing trend towards fixed, mobile, broadcast, network convergence and rapid adooption of 3G value added services and other digital and interactive services in the telcom and cable industries by both cable and telecom operators in China. The recent launch of their new D-Smart software to tap the growing cloud based mobile solutions platform would pave the way for more contributions from this higher margined software business.
• Management’s optimism is underpinned by the 25-30% yoy growth in order books to US$72mln.
• However, the robust growth means that working capital requirements are heavier with 1H2011 negative operating cash flow rising from US$7.3mln last year to US$15.6mln this year and after capex of US$9mln and repayment of bank loans, cash holdings dropped from US$80mln to US$56.8mln. However, with debts of US$14mln, the company remains in net cash position of US$42.8mln.
• Since the company started its share buy back on 23 May’11, it has bought back 1.7mln shares between the 32-34 cents level.
• Despite its share buy backs, the stock continues to weaken, currently at its 52 week low of 30 cents. Its June’10 low was around the 28 cents level.
• We maintain our Neutral recommendation pending an update from management later this morning.
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