S$0.35-NERA.SI
Nera did well in 3Q ’11 with profit rising 77% yoy and 6.4% qoq to $2.66mln, pulling 9 months profit up 12% to $7.45mln, underpinned by increased contributions from higher margined service contracts with key telecommunication and infocommunication customers in Asia.
And cash flow generation was also robust with free cash flow for the 3Q ’11 at $5.86mln and for the 9 month period at $22.45mln.
Looking ahead, despite the uncertain macro environment, management was relatively upbeat about prospects in 4Q ’11 citing their robust order books of $116mln, up 10% from last year as well as strong enquiries recently as end-customers continue to demand faster internet speed as service providers migrate to 3G and 4G solutions and as epayment solutions continue to be in demand as Asian governments seek increase e-payment services.
The floods in Thailand will have little impact on the company as they have already completed their customer’s requirements there.
Seen to be a defensive stock, if we add back the 4 cents that went ex-div in mid-2011, the stock has barely fallen from its high of 42 cents this year versus sharp falls in the wider market.
While we continue to expect the stock price to be supported by expectations of another 4 cents dividend (to be declared in Feb ’12), we note that it would likely underperform in the current phase of a market rebound where badly beaten down stocks come into focus.
At 11-12x PE, 2.4x price to book and 11.4% dividend yield we continue to maintain our HOLD recommendation.
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