DMX Technologies

UOBKayhian on 1 Aug 2012

Valuations
· DMX Technologies (DMX) is trading at 9.8x 2012 earnings with a dividend yield of 1.4%. Based on Bloomberg’s consensus estimate (one broker), DMX has a 12-month target price of S$0.27 and is set to report US$20.5m of earnings in 2012, a yoy growth of 10.2%.
Investment Highlights
· DMX is an infrastructure enabling (IE) and digital media solutions and service provider. Its customers are from a wide range of industries, including telco and mobile operators, cable TV providers, manufacturing, logistics and transport.
· There are two segments that come under the category of IE. First, they specialise in network system integration and this portion contributed 45.8% of 1Q12 revenue. The other segment is managed services that provide 24/7 IT security solutions for enterprises. Managed Services have a gross margin of about 40-50% but network integration would generally bring about a gross margin of 10-15%.
· Digital Media (44.8% of revenue) is primarily aimed at Cable TV operators, telco companies, and mobile operators. One of the highlighted Digital Media products that DMX offers is the Vision TV platform. For a small fee, this platform enables cable TV operators to provide interactive, dynamic value-added services to their subscribers. Currently, DMX is charging the operators licensing fees but has plans to shift their strategy towards revenue-sharing for every value-add service viewers request through their platform.
· The New Media Services provided by DMX focuses on Cloud Services and Mobile Applications. The mobile solutions are targeted at both individuals and enterprises to track personnel or inventories.
· DMX has acknowledged that the revenue generated is one that is slightly seasonal, with profits in the first half usually 40% of the full year. As at 31 March, DMX had an outstanding orderbook of US$73.8m, mostly associated with infrastructure enabling.
Financials Highlights
· For 1Q12, the group’s net profit grew marginally to US$2.0m (+4.2% yoy) despite stronger revenue and better gross margins. Revenue climbed 14.0% yoy to US$73.4m and gross margin rose 0.5ppt to 22.5%, driven by a 43.0% revenue growth in DMX’s TV-related Digital Media. However, operating expenses rose 20.3% to US$11.0m as the group recorded higher costs for new business initiatives, higher business volume and expansion into new geographies.
· Investors should also note that 1Q is a seasonally slower quarter and contributed an average of 9% to the full year’s net profit for the last three years.
· Currently, DMX has a strong net cash and cash equivalent of US$58.0m, which is likely to fund the development of new technologies or geographical expansion through M&A.