Company profile:
Platt Nera provides IT solutions to Thai financial institutions, government departments and agencies. Since its inception in 2004, the company has received a number of large-scale projects, including the ATM project in 2006, the tsunami detection system in 2010 and the satellite system project in 2014. The company supports its largest customer BAAC (the state-owned bank of Thailand established in 1996) to operate (1) about 2000 ATM mainly located in rural areas of Thailand, accounting for about 2.9% of the total number of ATM cards in Thailand; and (2) about 8.7 million active ATM cards, accounting for about 9.8% of the total number of active ATM cards in Thailand.
Sino-Thai point of view:
Driven by the transformation of Thailand's digital smart country, the market potential of IT solutions is huge: according to the Euromonitor report, the Thai government promotes Thailand's Plan 4.0, focuses on public services, education, economy and other related areas, and deploys a large number of IT solutions, such as Internet of things data centers and big data analytics and cloud services. During the forecast period from 2019 to 2023, government expenditure on IT solutions is expected to grow at a compound annual rate of 5.1%, reaching approximately 32.3 billion baht in 2023. Thailand's demand for financial services is expected to grow generally, including transactions on ATM, which will drive demand for ATM IT solutions. In terms of earnings, the total market size of ATM IT solutions is expected to grow from approximately 5 billion baht in 2019 to approximately 5.6 billion baht in 2023, representing a CAGR of approximately 2.4 per cent.
Operating performance: from 2016 to 2018, Platt Nera realized operating income of 370 million baht, 300 million baht and 770 million baht, respectively. The decline in 2017 was due to considerable revenue generated in 2016 by the substantially completed chip card project (related to ATM system upgrade to support the issue of BAAC chip cards) and the satellite system project in cooperation with GISTDA was largely completed in 2016. The significant growth in 2018 was mainly due to an increase in IT integrated solutions projects, including (1) debit card projects in partnership with BAAC (2) develop videoconferencing system for the Ministry of the Interior; (3) Security system project; gross profit margin is 53.6%, 57.6% and 32.9%, respectively. The decline in 2018 is mainly due to the relatively low gross profit margin of the above three IT integrated solution projects, which are 25.5%, 13.6% and 4.1%, respectively. The net interest rates were 25.54%, 26.33% and 14.71% respectively, and the fluctuations were roughly in line with the changes in gross profit margin.
Valuation: based on 400 million shares after the global public offering, the company has a market capitalization of HK $5 billion to HK $620 million, which is lower than its Hong Kong counterparts. The company's price-to-earnings ratio is about 17.8-22.0 times, which is higher than the industry average; the price-to-book ratio is about 4.17-4.19 times, which is higher than the industry average. In terms of profitability, the 18-year ROE and ROA were 138.1% and 17.0% respectively, higher than the industry average. Considering the company's industry status, performance and valuation, we give it a rating of 57 points, with a rating of "neutral".
Risk tips: (1) rapid development of technological change, market competition risk (2) highly dependent on contracts awarded by major customers