Lantrovision is listed on the SGX Mainboard with a market capitalization of about S$125 million and public float of over 50%. It provides installation, maintenance and support services for structured cabling systems, servicing mainly Fortune 500 Finance and Technology companies, and also engages in the distribution of cabling systems and their components.

Lantrovision rides on 2 trends:

The need for global MNCs – especially Finance and Technology firms - to have globally standardised high quality structured cabling to avoid and quickly deal with critical systems failure. Lantro’s customers are presently most of the Finance and Technology global household names.

The growth of Data Centres in Asia: Operations in Singapore, Malaysia and Hong Kong constitute about 72% of Lantro’s revenue in the last fiscal year. With MNCs setting up more data centres in the region on business expansion as well as to capitalise on emerging trends in cloud technology and services, this would lead to increasing demand for structured cabling projects and cabling maintenance services.

Competitive Advantages:

Channel checks reveal that Lantrovision is “best in class” with an excellent track record with recognition won for its services

Regional presence through subsidiaries and a global network through its Lantro Global Alliance Programme (LGAP) enables it to bid for global structured cabling contracts from the Fortune 500 – this is a key competitive advantage given the increasingly global nature of contracts.

Risk Factors

• Adverse global economic conditions may impact earnings significantly
• Labour crunch and failure to retain key staff personnel
• Impact from technological changes
• Competition could regionalise
• Earnings can be volatile

Investment Action

Lantrovision has a strong cash position at 75% of equity with zero debt borrowings. Excluding net cash, shares may be trading at fwd P/E ex. cash of just 3-4x. This is despite our conservative earnings estimate of FY14F EPS 4.9¢ (9M14 EPS: 4.0¢). Due to competitive reasons, Lantrovision does not reveal its customers and contracts won under non-disclosure agreements, which may mean that the market will view forward estimates at a discount due to greater uncertainty. Nonetheless we believe our estimates to be reasonable due to Lantro’s competitive position. Based on our DCF valuation, we derive a 12-month target price of S$0.685. This represents at least 30% capital upside based on our target price. Expected dividend yield of 4% further adds on to the potential upside, assuming final dividends of 2¢ for FY14F (same as FY13 DPS). We like Lantrovision as a deep value stock and recommend a “Trading Buy”.

Source: Phillip Securities Research - 20 May 2014