Ntegrator International

Kim Eng on 22 June 2012

Background: Ntegrator is a telecommunications network specialist and systems integrator that counts M1, and more recently SingTel, as key customers. Its core businesses include the design, installation and implementation of data, video, fibre, wireless and cellular network infrastructure as well as voice communications systems. Other than Singapore (where key customers such as M1 and SMRT contributed 45% of last year’s sales), it has also operations in Thailand, Vietnam, Myanmar and most recently, as far afield as Peru in South America.

Why are we highlighting this stock? One, Ntegrator is a beneficiary of SingTel’s recent outsourcing trend, which started at the beginning of 2012. It recently announced a managed services contract from Huawei to manage SingTel’s outsourced copper voice and data network infrastructure in Singapore. Two, Ntegrator is a potential play on growth in the Indo-China region, as it has long had a presence in emerging markets such as Vietnam and Myanmar that are building up their telecom infrastructure.

Recovery story. Following a horrendous FY10 and a slight recovery in FY11, Ntegrator should do better in FY12, going by its recent strong flow of contracts. However, it may not resume its dividends following a pause in FY11, as it may want to retain cash for working capital.

Benefiting from 4G, Pay TV in Singapore. Other than the managed services contract, Ntegrator has also clinched another contract from SingTel to provide DSL hardware, which we think is part of SingTel’s efforts to improve its glitch-ridden DSL-based pay TV network. In addition, it has also been tapped by Huawei to supply and install fibre optic termination frames for M1. These contracts will contribute in FY12.

Hot links to Myanmar and Vietnam. Ntegrator has long had a presence in up-and-coming Indochina markets Thailand, Myanmar and Vietnam. In Myanmar, it is reported to have close links to the Ministry of Defense, with one cellular equipment contract announced just in Mar 2012. Vietnam, where repeat customer Viettel is the biggest telco, accounted for 31% of its revenue in FY11.

With share overhang lifted, all warrants should be converted. Two big shareholders sold down their stakes in Mar-Apr 2012. The stock’s subsequent rebound to a high of SGD0.06 triggered off a flurry of warrant conversions. We reckon all of its 277.7m warrants outstanding as at Dec 2011 are likely to be converted, following which Ntegrator will receive more than SGD5m in cash, beefing up its working capital warchest to take on additional projects.

However, overhang saga could still have a Part 2. At this stage, we are not clear why the two big shareholders – venture capitalist McLean Watson and EDB GIP investment fund Fortune Technology Fund – decided to sell out. Although Fortune has exited both its share and warrant stakes, McLean Watson still retained a stake of 44.6m warrants as at Jun 2012, or an equity stake of 6.5% on the expanded share base.