SINGAPORE (Dec 14): NRA Capital is “overweight” on TeleChoice, the IT equipment distributor, with a fair value of 34 cents given its likely expansion into new services, positive outlook for handset sales and the emergence of the fourth new telco.
In a Monday report, analyst Liu Jinshu says the recently established JV partnership with D-Ron Singapore suggests that TeleChoice may be rolling out a new service under its personal communications solutions (PCS) segment.
D-Ron Singapore is primarily involved in the provision of IP surveillance, networking solutions, storage requirements and video management software.
Given these capabilities, Liu thinks TeleChoice’s PCS segment is seeking to expand beyond handsets into the potential provision of smart home system services.
“With TeleChoice’s existing businesses with StarHub, the provision of additional services is synergistic and matches the bundling of end services, including internet, TV and mobile to consumers,” says Liu.
TeleChoice could also benefit if Samsung’s Galaxy S8, which is expected to be released in March or April, become a big hit. Like Apple’s iPhone, the Galaxy S8 is expected to replace its headphone jack with a wireless alternative. The handset could also feature bendable screens.
“Given the Note 7 recall, we reckon that Samsung will double down on efforts to make the Galaxy launch a success and to recapture market share,” says the analyst.
The emergence of a fourth telco will also benefit TeleChoice’s network engineering business the most.
MyRepublic and TPG Telecom have been shortlisted to participate in the spectrum auction. If MyRepublic is selected, local services providers such as TeleChoice are likely to benefit as the new telco will have to roll out its own network within 15 months.
The risks are if a decision is made not to have a fourth telco or if Australian TPG Telecom is selected as it may have its own choice of service providers, adds Liu.
To recap, TeleChoice in 3Q16 reported improved financial results with revenue growing by 2% quarter-on-quarter and PATMI rebounding to S$2 million from S$0.5 million in 2Q16.
The improved bottom line was driven by higher margins across all three segments and the reversal of a pre-tax loss of S$1 million in 2Q16 to a pre-tax profit of S$0.3 million in 3Q16 for the ICT segment.
“Overall, we continue to like TeleChoice for its full fledge of capabilities to support telco companies, e.g. retail and supply chain management services, ICT services and network engineering services,” says Liu.
Shares of TeleChoice are up 0.5 cent to 26.5 cents.