Telechoice

UOBKayhian on 18 Mar 2014

VALUATION
• Telechoice is trading at 11.9x FY13 PE (vs its 3 year historical average of 13.8x PE) and 1.6x PB.

INVESTMENT HIGHLIGHTS
• Telechoice has three main business segments: Personal communications solutions services (PCS) (54.1% of FY13 PBT), Engineering (34.2%) and Info- Communications Technology (ICT) (11.7%).

• PCS: Telechoice distributes mobile phones and accessories through its retail network, Planet Telecoms. As Starhub’s exclusive partner, Telechoice manages three StarHub Platinum shops in Singapore, providing full-fledged services such as the activation of Starhub mobile lines and subscription to cable TV and broadband services. With its strategic partnership with Samsung, Telechoice also opened its fourth Samsung Experience Store in Singapore last year, which will offer Samsung’s wide range of products from smartphones to notebooks and cameras. PCS contributed about S$6m annually to the group’s PBT in the last three FYs.

• Engineering: With its quality service offerings (such as implementation of inbuilding cellular coverage and radio network planning and optimisation), Telechoice was ranked the leading provider of Radio Network Planning and optimisation services in Indonesia. Since the economic downturn in FY09, PBT from the engineering segment has recovered strongly, with a CAGR of 18.9% from S$1.9m in FY09 to S$3.8m in FY13, driven by capex spending from regional mobile operators.

• ICT: Telechoice offers a comprehensive range of ICT solutions such as enterprise infrastructure, IT outsourcing and managed services for different industries. With the recent appointment of the group’s new President, Mr Vincent Lim, Telechoice could be looking to grow its ICT segment as it tries to break into new customer segments. Mr Lim has more than 30 years of IT experience, and was the vice president of enterprise data and managed services at Singtel.

• Consistent dividend payout with a strong free cash flow to support it. Since its listing in FY04, Telechoice has paid out a DPS of at least S$0.016. Based on its FY13 DPS of S$0.016 (payout: 75%), this translates to an attractive dividend yield of 6.2%. With the exception of new acquisitions, Telechoice has always generated very strong free cash flow underpinning its dividend paying ability. For FY13, Telechoice generated free cash flow of S$0.025/share.

• Solid balance sheet. Telechoice continued to maintain a strong balance sheet in FY13, with a net cash position of S$0.06/share (about 23% of market cap).