7 Quick Things I Learned From NeraTel’s 2015 AGM

Payment solutions is a growing business segment for NeraTel. The segment generates consistent, recurrent income and could see it become the company’s “crown jewel” in the near future.

One worry among investors though is the introduction of Apple Pay and how it may affect NeraTel’s payment solutions business in the near future. With that in mind, I decided to attend NeraTel’s AGM this year to find out more about this possible disruption and whether it could hurt their payment solutions business.

So here are…

7 Quick Things I Learned From NeraTel’s AGM 2015:

  1. The payment solutions segment has lower gross margins compared to NeraTel’s other business segments. Because of this, the company’s overall gross margins decreased due to an increase in proportion in revenue from the payment solutions segment. The good news, however, is this revenue is highly recurring.
  1. NeraTel’s payment solutions segment has to grow through volume. The ticket item for NeraTel’s payment solutions business is smaller compared to their other business segments. For example, a payment terminal is sold for about $250 whereas a router is sold for half a million, hence the volume needed. This is the reason why NeraTel is expanding aggressively outside of Singapore in order to scale their payment solutions business. Right now NeraTel’s payment solutions can be found in Singapore, Thailand, Indonesia, Malaysia, Vietnam, Myanmar, and the Philippines and the company is the largest payment terminal provider in South East Asia.
  1. Apple Pay is not a threat to NeraTel. When using Apple Pay, consumers have to tap their phones on a payment terminal in order to make payment. These payment terminals are built and sold by NeraTel. Hence, if mobile payment grows, more payment terminals are needed which will benefit NeraTel.
  1. NeraTel is selective on growth opportunities for their payment solutions segment. NeraTel calculates and ranks the payback periods for every growth expansion opportunity. They only take on opportunities with the shortest payback period. The management is rather conservative in this manner while looking to grow their payment solutions segment at the same time.
  1. NeraTel is helping hotels to build their wireless networks. NeraTel has been quietly successful in providing wireless network solutions for hotels. They are slowly gaining recognition in this segment and recently received their second order from Novotel Hotel.
  1. NeraTel in working to be a “solutions provider” for their clients. CEO Samuel Ang believes that providing overall solutions & services for clients instead of just selling equipment on a project-by-project basis will increase NeraTel’s revenue and improve their margins in the future. They are working on this direction to grow the company.
  1. There are now a record 200,000 NeraTel payment terminals in the market. Four years ago, NeraTel’s payment terminals numbered less than 100,000. They have been aggressively capturing market share and, if needed, lowered their prices to do so. NeraTel is now the largest payment terminal provider in Thailand and also have a large, sizable presence with major clients in Indonesia.

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Victor Chng is an equity investor and co-founder of The Fifth Person. His investment articles have been published on The Business Times BTInvest section and Business Insider. He has also been featured multiple times on national radio on 938LIVE for his views and opinions on how to invest successfully in the stock market. Victor is also the co-author of Value Investing in Growth Companies published by Wiley, Inc. The book can be found in all major book stores worldwide and on Amazon.com, Barnes & Noble and Apple's iBooks. On a personal note, Victor represented Singapore in the 2008 TAFISA World Games in Busan, South Korea and was the 2008 IFMA World Muay Thai Championships bronze medalist, kicking some serious ass along the way.

7 Comments

  1. lina

    May 8, 2015 at 11:50 am

    Thank you for your generosity in sharing your good knowledge. This helps common retail investor like myself to appreciate and learn what truely value investing is. Thanks again, appreciate it.

    • Victor Chng

      May 10, 2015 at 12:40 pm

      Hi Lina,

      You’re most welcome! Glad that The Fifth Person has helped you learn what smart, profitable investing is all about! :)

  2. shouyi

    February 25, 2016 at 4:44 pm

    Looks like they hey days of Neratel is over. Q4 FY2015 dividend cut to 1 cent.

    • Victor Chng

      February 28, 2016 at 1:50 pm

      Hi Shouyi,

      I actually beg to differ. Neratel’s dividend for FY2014 was 4 cents per share. For FY2015 as of now, it is 3.5 cents per share.

      So despite the tougher macroeconomic conditions, Neratel has only cut their dividend per share by half a cent. Based on current dividend and share price, you are still getting a 6.1% dividend yield. Not too bad!

  3. shouyi

    February 29, 2016 at 10:10 am

    Given the intense competition that NeraTel faces, earnings could continue to come under pressure in the future.

    My only worry is that DPU might continue to drop in years to come..

    • Victor Chng

      March 2, 2016 at 10:54 am

      Hi Shouyi,

      I agree. NeraTel is facing tough competition especially in telecommunications. At the same time, their payment solutions segment is growing steadily and increasing the company’s recurring revenue.

      As with any investment it’s important to monitor the fundamentals of the company moving forward and NeraTel is no different.

  4. Pingback: 15 things I learned from NeraTel’s FY2015 AGM | The Fifth Person

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