Excelpoint
Technology (BDF) has been a hidden gem whose intrinsic value will be uncovered
soon. From my calculations, it is going to be a 6-bagger if its strong growth can
be sustained. It will be at least a 2-bagger if it just maintain its current level of earning ability with zero growth. I
will hold it till it reaches at least $1.85 as I
would wager that it will be a 3-bagger hands down by end of September 2017.
Solid Performance
in 4Q2016 and FY2016
Its net
profit after taxation in FY2016 grew 62% compared to that in FY2015. It looks like its profit growth has gained momentum as its net
profit after taxation in 4Q2016 grew even more solid at 128.2% compared to the
same quarter in the previous year. Also, Singapore NODX accelerated by 21.5% in February from a year ago to extend
its growth into the fourth consecutive month, boosted by both electronics
(+17.2%) and non-electronics (+23.3%). This supports the view that the
manufacturing and trade momentum remains strong, and will continue to lead and
support growth in 2017 and companies like AEM and Excelpoint are on the cusp of
their growth trajectory.
At the closing
price on 21 Mar 2017 of $0.615, and take 1 US$=S$1.3963,
NAV =
80.9 cts
Dividend = 4 cts
Dividend = 4 cts
EPS
last FY = 9.29 cts
p/e =
6.62x
p/b = 0.76x
yield = 6.5%
PEG ratio = 0.107
p/b = 0.76x
yield = 6.5%
PEG ratio = 0.107
How
solid is this set of results if Excelpoint is to just maintain, not improve,
its business performance?
For
every S$1 market value of Excelpoint, it will make 19.9
cts if the 4Q2016 earnings can be repeated in all the 4 quarters in
FY2017. And if the same dividend payout ratio is to be given, the current yield
of 6.5% will be increased to 8.57% in FY2017 if the market price per share does not
change till the next dividend payable date. I cannot possibly ask for anything
better than this as it is much better than CPF special account rate of 4%. And
I know I can get more than 8.57% if there is
growth in its FY2017 performance!
The
company has yet to declare the dividend payable date and from past records, it
is likely to be at end of April or the beginning of May. If you invest in the stock
now, you will get to reap the 6.5% yield soon.
The Group
CEO showed confidence in his company
On his
outlook for the new financial year FY2017, Group CEO Albert Phuay said: “The
electronics industry will continue to see more opportunities arising,
especially with the announcements of new developments in the recent Consumer
Electronics Show 2017 by global leaders. With many government projects kick
starting and the recent spotlight on the Internet of Things, we see increasing
demand for our solutions and products. We have recently set up a lab in India
to enhance our value-added services in applications designing so as to
strengthen our positioning. We are also actively seeking more product lines to
broaden our offering. Notwithstanding the challenging business environment, the
Group will continue to capture new business opportunities and focus on
delivering sustainable growth.”
No
Insider purchase? Look deeper!
We
should all know that insider purchase or company buyback of its own shares speaks volumes about
the confidence displayed by the management on the prospects of the company.
However, the insider purchase made on 29 Feb 2016 was a bit too long ago and only
S$3,300 was involved.
There
was an issuance of 15,000,000 new ordinary Excelpoint shares to Alonim
Investment Inc. by way of a private placement at S$0.525 per new ordinary share
on 5 October 2016. This amounted to S$7,875,000, which is about 12.77 % of the number
of enlarged voting shares in the capital of the company.
Alonim
Investments Inc., a Canada company, operates as an electronics manufacturing
firm and it produces and supplies electronic components and accessories. So,
Alonim Investment Inc. is in the same industry as Excelpoint and it should know
the significance of the purchase and the synergy between the two companies.
What was intriguing is the purchase price of S$0.525 apiece is 41.9% higher
than the market price then. Does Alonim Investment Inc. know something that Mr Market doesn't?
The
company also just announced on 21 Mar 2017 that the Directors will propose that
the share buyback mandate be renewed at the forthcoming AGM to be held on 5
April 2017 --- a very positive move to help all shareholders to enhance the
value of their shares should Mr Market underestimate the shares by a huge margin.
Company
is in expansion phase with solid earnings
The
cash flow of the company shows that it has been borrowing money to create more
earnings for its shareholders. The EBITDA/Interest Expense is at a healthy
4.531x at the end of FY2016. This is a typical characteristic of a growth
company. When the company’s expansion reaches a steady state and it stops borrowing from banks to finance its expansion, the savings in
interest expenses should turn into positive cash flow and more earnings in
favour of the shareholders.
The
fact that it can generate solid p/e and give solid dividends shows that the
management has the shareholders’ best interests at heart.
The bulk
of its revenue has come from China and it is definitely a scalable business.
Its revenue has been growing which shows the strong demand for its products and
services.
Also
noteworthy is that Excelpoint signed a partnership with Tata Elxis as its software
partner, as well as obtained the distributorship of Xilinx in India in last
November to enhance its solutions offering and this has allowed it to expand its
footprints in the region. Also, its R&D team has developed new products
like wireless audio and headsets, offering the company ample room for growth. To
capture opportunities in the IoT segment, it has set up a dedicated team with the
expertise and market knowledge to design solutions that can be applied to a
broad range of applications.
Poor
liquidity of its shares can be a strength
The
market capitalisation of Excelpoint is around $72.3m based
on the closing price of 61.5 cts on 21 Mar 2017.
The two top shareholders, Albert Phuay and Alonim Investment Inc., together own
about 53.2% of the total voting shares of the company and the balance 46.8%
shares are worth only about $33.8m dollars. It
is quite difficult to accumulate the shares of Excelpoint without pushing up its price due to its
illiquidity.
But the
illiquidity can be taken as its strength too as there is no need for a big
volume to push its share price through the roof. What is important for buying
an illiquid stock is that it must be an undervalued gem and you must be
prepared to hold it for the long haul till Mr Market uncovers it.
What
can happen to such a high growth company?
Like
AEM and Best World which I have uncovered in my earlier posts, it is likely that Excelpoint may announce bonus issue if their
growth in earnings can be sustained. As aforesaid, it will propose in coming AGM to institute share buybacks
to enhance the value of its shares to reward shareholders.
Best of
all, it can easily be a takeover target for its superb earning power and its
small market
capitalisation.
Background
of Excelpoint Technology Ltd
It is a
leading regional electronics components distributor providing quality
components, engineering design services and supply chain management to OEM, ODM
and electronics manufacturing services in the Asia Pacific region. It ranks
among the Top 25 Global Franchised Distributor List from EBN in 2016.
It
works closely with its principals to create innovative solutions to complement
its customer’s products. The Group has R&D centres in both Singapore and
China supported by a team of professional engineers aimed at helping customers
improve operational efficiency and cost effectiveness.
Established
in 1987 and headquartered in Singapore, Excelpoint’s presence spans more than
25 cities across Asia Pacific. It employs currently more than 600 people of
different nationalities.
