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Lantrovision – Ultra-Undervalued Ultra-Penny

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Some ultra-penny stocks (defined as those with share prices less than 10c) have received a lot of negative attention lately, for their dramatic price surges and equally dramatic plunges. What sets Lantrovision apart from the heap?

Lantrovision (LANT:SP) is a Singapore-based information technology company listed on the Singapore Exchange, operating mainly in Singapore, Malaysia, Hong Kong, China, and Korea. It is involved in the sale, installation and maintenance of integration network cabling systems.

Why Buy?

  • Large cash hoard of more than S$60m (mainly from accumulated profits) and negligible debt, translating to net cash per share of 2.96c (against share price of 3.5c)
  • Very low capex business; Generated nearly S$30m free cash in the past 4.5 years (of which more than $5m can be attributed to each of the most recent 3 quarters)
  • Net asset per share of 4.59c (i.e. 0.76X P/B)
  • P/E of just 6.0X (trailing 12 months)
  • Yearly revenue exceeds S$100m (i.e. 0.5X P/Sales)
  • Pan-Asia business footprint and a well-established name in the industry
  • A Company director last bought shares in Oct 2011 (at price of 2.6c)

Source: Bloomberg BusinessWeek

Risk Factors

  • Management’s plans on the use of cash hoard are unclear; excess cash holdings also drags down ROE (at 9%)
  • Has not paid dividends for nearly 5 years (since 2007)
  • Downside of low capex business is that the company lacks a long-term economic moat (such as intellectual property), which is apparent in some markets it operates (such as Thailand)
  • Micro-capitalization of just over S$70m, with zero research coverage by brokerages and low corporate profile
  • Susceptible to market speculative forces, as seen in the recent rally to 4c and subsequent collapse in share price
  • Staff costs (which increased by S$1.5m year-on-year  in the quarter ended 31 Dec 2011) appear to be escalating, faster than the rise in revenue

Similar to:

1. Ntegrator (NTEG:SP)

  • Regional communications network specialist and e-business systems integrator
  • Relatively low performer at about one quarter the size of Lantrovision  (FY11 revenue S$37m, net profit S$332k, 70X P/E, 1X P/B)

2. FDS Networks (FDS:SP)

  • Involved in network system integration, distribution of networking products, provision of technical services, and asset management activities in the region
  • Loss maker at about 10%  the size of Lantrovision  (FY11 revenue US$10m, net loss US$624k, 0.8X P/B)


Conclusion

Highly undervalued according to fundamental analysis. Compares very well among listed peers and offers good potential for a special dividend. BUY.

 

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Last Updated ( Monday, 07 May 2012 05:31 )  
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