Micro Cap Investing: Powermatic Data Systems Limited [SGX]

Company Profile

Powermatic Data System was established in Singapore since 1 February 1989 and was listed in the
SGX since 1992. As an investment holding company, it has six fully owned subsidiaries located in
Singapore, China, USA, and Malaysia. The Group operates under two main segments:

  1. Manufacturing and sale of Wireless Connectivity products and related services.
  2. Lease and maintenance of Harrison Industrial Building, a freehold investment property owned by
    the Company. Geographically, our sales distribution for FY2020 is Asia – 43%, USA – 33%, Europe – 20%, and Other regions – 4%.

Quick Market Stats

Fundamentals

Consistent growth in EPS and Book Value
ROE > 10% and in net cash position

Technicals

Strong resistance @ 2.75, may look at 2.35 as possible entry price. Nevertheless, in view of capital reduction, I may enter at prevailing market price to receive the entitled distribution amount.

Recent Developments / Prospects 

The Company proposes to undertake a capital reduction exercise (the “Proposed Capital
Reduction”) to be carried out by the Company pursuant to Section 78G of the Companies Act
read with Section 78I of the Companies Act, which will involve a capital distribution (the “Cash
Distribution”) by the Company to Shareholders of S$0.286 in cash for each ordinary share in the
capital of the Company (the “Share”) held by a Shareholder as at the record date to be
determined by the directors of the Company (the “Directors”) for the purpose of determining the
entitlement of Shareholders (the “Record Date”).
As at the date of this announcement, the Company has an issued and paid-up share capital of
S$34,558,722.82 comprising 34,953,156 Shares (excluding treasury shares). The Company is
proposing to return S$0.286 in cash for each Share held by the Shareholders or on their behalf as
at the Record Date. Based on the total number of issued Shares of the Company (excluding
treasury shares) as at the date of this announcement, an aggregate amount of S$9,996,602.62
(based on S$0.286 for each Share) will be returned to the Shareholders pursuant to the Proposed
Capital Reduction.

Desktop Valuation

Quick and dirty analysis on indicative value. Assumed EPS of $0.24 per share, 4% p.a growth rate for next 10 year and terminal growth rate of 2% at end of 10 year thereafter. Assume a required discount rate of 10.0%.

Target indicative valuation of about $3.50 per share and margin of safety > 25%

Final Thoughts

  • This company has a decent track record (in terms of margins and growth rate) and relatively strong financial position
  • Prospect relates to growth of IOT / communication
  • Decent margin of safety based on reasonable assumptions
  • Potential risks – technological obsolescence and low barriers to entry (?). Major exports to US, not sure this will be impacted by the on-going trade wars

Disclaimer: This is not an investment advice or endorsement. Please refer to the general disclaimer of this blog.

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