Nera’s 3Q’13 net profit disappointed by declining 42% yoy to $3.3mln as the sales rise of 4% to $50mln came in weaker than expected due to delays in start-up of capex spending by telcos, other income plunged 93% to $49,000 as lower accounts receivable was collected from an OEM agreement and SG&A expenses rose much faster than sales growth due to higher payroll and operational costs in relation to the setting up of a new subsidiary in Nigeria as well as consolidation of their Malaysian subsidiary.
While the 3Q’13 performance was disappointing, it is encouraging that the company’s order books for the telco division rose 4.4% to $54.7mln, infocomm business order books rose 17.4% to $103mln, network infrastructure division rose 15% to 68mln and payment solutions rose 22% to $34.4mln (from Philippines and Thailand).
This suggests that the outlook for Nera is still robust.
The company’s cash flow generation for 3Q’13 still remains robust with positive operating cash flow of $8.8mln more than sufficient to cover capex of $902,000 and dividend payment of $7.2mln.
Net cash position remains at $26mln, about 10% of its market cap.
With the stock having done very well this year already, having risen 55% (despite investors having received dividends of 6 cents) compared to the STI’s flattish performance YTD, we believe further outperformance is difficult and the stock will likely range trade in anticipation of another good dividend payout in Feb next year.
We lower our rating from BUY to HOLD.