Powermatic Data Systems is “plugged into growth,” CIMB said, starting the stock at Add, with a S$2.58 target price.
”We believe Powermatic, whose core business is wireless connectivity, is plugged into the growth potential of 5G telecommunications networks and the rising Internet of Things trend,” CIMB said in a note dated Monday, noting that the company manufactures a wide range of hardware including wireless modules, embedded boards and antenna.
“At the current share price, we believe investors are getting Powermatic’s growing wireless connectivity business for free,” CIMB said.
Powermatic released 10 cutting-edge products successfully last year, CIMB said, noting the high value-add and intellectual property content of its business led to a 45.1 percent gross margin in fiscal 2017.
CIMB added that Powermatic’s balance sheet is “rock solid,” with a net cash position as of the end of September and zero debt.
While Powermatic doesn’t have a formal dividend policy, it has paid a final dividend per share of 5 Singapore cents a share for the past five years, and in fiscal 2017, it paid a special dividend of 2 Singapore cents a share after net profit hit a S$4.2 million, its highest since the Global Financial Crisis, CIMB said.
The downside risk
Powermatic shares have poor trading liquidity, CIMB noted.
“We opine that the board should deliberate the possible liquidity benefits of a share split or bonus issue,” CIMB said.
With the founder and CEO, Dr. Chen, nearing 70 years of age and no family-in-waiting to take over the business, the board should also evaluate succession planning, CIMB added.
The brokerage said it saw two possible succession planning options: One, that Dr. Chen eventually retires and remains an advisor to the company, which would be managed by a team of professionals, or two, he could sell the company to a buyer that could help it grow.
The stock was up S$0.45 at S$1.84 at 3:04 P.M. SGT.
Correction: This story was updated at 3:56 P.M. SGT to correct the share price movement.