$POWERMATIC DATA SYSTEMS LTD(BCY.SI)$
Powermatic Data Systems manufactures a wide range of wireless connectivity hardware such as wireless module, embedded boards and antenna. Powermatic Data is also the authorized design center for Qualcomm in Southeast Asia where they provide both hardware and software services to many MNCs. Powermatic Data is extremely undervalued at its current trading price, and I believe this company’s share price has been mispriced due to its valuable freehold land and huge net cash in its balance sheet.
The Company’s Revenue and EPS has been growing at a CAGR of approximately 15% over the past 5 years. Being a leading manufacturer in the wireless connectivity market, Powermatic Data rides on transformative trends such as hyperconnectivity, accelerating adoption of Artificial Intelligence of Things (AIoT) in consumer and industrial applications, as well as vehicle-to-everything (V2X) trend in the automotive market. These trends will generate more demand for Powermatic Data’s products and services in the long run.
According to Mordor Intelligence’s research in 2021, the wireless connectivity market is estimated to register a CAGR of 12.66% for the period 2022 to 2027, driven by strong growth from AI, loT, AR and VR. Powermatic Data states in its latest FY22 annual report that several of their active customers have products that focus on these areas, and they continue to build their order book with such orders.
Additionally, Powermatic Data holds 2 freehold investment properties, 7 and 9 Harrison Road, which are located at Upper Paya Lebar and valued at S$37.8mil based on the latest annual report. Powermatic Data has attempted to unlock value for shareholders through a spin-off of these 2 investments properties, but it failed in the end. There was also a lack of buyer interest the last 2 years, most likely due to Covid. However, this is actually a blessing in disguise! Based on PM Lee’s NDP rally, Paya Lebar Air Base and its surrounding areas will be redeveloped, and the plot ratio and height restrictions will most likely be lifted higher! The potential value of the Group’s freehold investment property could well be more than the current fair valuation!
As a conservative consideration, lets keep the investment property at S$37.8mil, which is approximately $1.082 per share. (Note that the investment property is recorded at cost in its financial statement). Moreover, Powermatic Data has a rock-solid balance sheet with a net cash of S$47.7mil. Excluding the dividend payable after ex-date, net cash per share is S$1.263.
This means that if you exclude the freehold investment property and the net cash, Powermatic Data’s core wireless communication business is trading at only a PE multiple of less than 2 times based on FY22 trailing EPS of trailing EPS is 23.38 cents and the current price of 2.65! What a steal!
Powermatic Data has also been very generous with its dividend, with special dividend or capital reduction exercise announced annually to return cash to shareholders. One key risk to note is that Powermatic Data has very poor trading liquidity and will face large bid-ask spread.
Strong business fundamentals + freehold properties with upside potential + solid net cash. I wouldn’t be surprised if there is another company who wants to acquire this undervalued gem.
Above is my personal opinion, does not constitute as any trade recommendation or advice.
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