Falling Knife of the Week: Nera Telecommunications Limited

This week’s Falling Knife, Nera Telecommunications (SGX: N01), or Neratel, slumped 7% to close at $0.72 on Thursday.

Neratel offers its clients a comprehensive range of products and services from satellite communications, microwave radio transmission, to information technology, networking infrastructure and high-end electronics contract manufacturing.

On 7th May 2014, the firm announced its first quarter results where net profit slipped 21.3% year-on-year.

Neratel divides its revenue into three segments – telecom, network infrastructure and payment solutions.

Overall revenue was up 11.5%, from S$36.5 million last year to S$40.7 million in the latest quarter mainly due to a 41% rise in revenue from network infrastructure. This segment’s revenue increased from from $14.2 million to $20 million mainly due to higher sales of network equipment to the service provider market sector, followed by the government, transport and utilities market sector.

Revenue from telecom segment increased 4.8% year-on-year from $13.2 million to $13.8 million while revenue from the payment solutions segment decreased 24.8% from $9.0 million to $6.8 million.

Even though gross profit (GP) for the quarter increased 2.5%, the gross profit margin dropped from 41.6% last year to 38.2% in the latest quarter due to a combination effect of different sales mix in product, lower GP margin in network infrastructure business segment, offset by certain projects that realised higher profit margin upon their completion and higher income from services and leasing.

Net profit declined to S$4.6 million from S$5.8 million, mainly due to lower other operating income and higher operating expenses.

As of 31st March 2014, the firm had a strong balance sheet with around S$20 million in cash and no debt.

Neratel is currently trading at a historical PE ratio of 11 and it sports a dividend yield of 8%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.