@ AGM of POWERMATIC DATA: Touching on cashpile, growth prospects, etc

Powermatic7.16 L-R: Finance manager Molly Chua, executive director Katherine Ang, executive chairman Dr Chen Mun, and independent directors Tom Yee, David Tan and Prof Lye Kin Mun. Photo by Remy Liaw
Powermatic7.16c Photo by Remy Liaw

agm logo Time & date: 11 am, 25 July 2016.
Venue: Wilkie Edge.

drchenmun7.16 Dr Chen Mun, executive chairman and CEO of Powermatic Data Systems. NextInsight photoDespite being a small listed company, Powermatic Data Systems is engaged in interesting, and cutting edge, projects with global players.

To start with, Powermatic is an authorised design centre for Qualcomm Atheros. It was the first Qualcomm design centre in Asia when it was set up two years ago.

Powermatic's management spoke about the company's involvement, and potential investments, in projects such as those that involve "a major search engine" and a global car rental company, without revealing names.

This was in response to shareholder questions on whether more of its large cashpile can be returned to shareholders.

Dr Chen Mun, its executive chairman and CEO, noted that Powermatic had been consistently paying 5 cents a share (adjusted for a share consolidation excercise in Aug 2015) in dividends a year.

He gave no hint that the payout would be raised. At 5 cents a share, the payout ratio relative to net profit is already high at more than 60% for FY16.

♦ What Powermatic does

♦. Powermatic produces customised solutions for clients using Qualcomm's wireless chipsets. These solutions have been applied to projects around the world, such as in Brazil, India, Australia and Germany.

♦ Powermatic's solutions, including hardware manufactured in its Suzhou Industrial Park plant, are sold to customers who market them to end-users which are corporations, such as telcos, in diverse industries.

Stock price	$1.00
52-week range	80 c - $1.065
PE (ttm)	12.3
Market cap	S$34.9 million
Price/book*	0.57
Dividend yield (ttm)	5.0%
Year-to-date return	8.1%
Sources: Bloomberg, Company

* Considering investment property at S$34 million market value.

Market cap $35 m vs assets $61.4 m
1) Investment building value	$34 m
2) Cash	$21.1 m
3) Financial assets	$6.3 m
Total	$61.4 m

Powermatic had net cash (and zero borrowings) amounting to S$21.1 million as at end March 2016, up from S$18.1 million a year earlier.

This compares with its current market cap of about $35 million (which, by the way, is approximately the value of its freehold investment property in Harrison Road).

Its business (manufacturing and sale of wi-fi connectivity solutions) requires relatively little capex.

Aside from the S$21.1 million cash, Powermatic holds about S$6.3 million in "financial assets available for sale" with an average yield of more than 4% a year, said finance manager Molly Chua in response to a shareholder question.

(Didn't sound like Powermatic would divest these assets anytime soon).

The chief investment among the S$6.3 million financial assets is a Thai-listed stock worth S$3.8 million whose cost to Powermatic was less than S$300,000 as it was bought at a discount from a Thai business associate, added Ms Chua, when asked for insights.

Regarding business performance, Dr Chen said that having scaled down its distribution business, Powermatic is focused on its wi-fi connectivity solutions business.

This accounts for virtually all of the group's FY16 revenue (S$15.5 million) and gross profit (S$6.2 million). Net profit was S$2.8 million.

With the low-margin distribution business scaled down to a minimal level, Powermatic's gross margin shot up from 31% to 40% in FY2016 (ended March).

It helped that Powermatic had improved its manufacturing efficiency by reducing wastage from, for example, unused components, said Dr Chen.

And it delivered new and higher performance products which commanded better margins.

To a shareholder who asked if the wi-fi business could grow rapidly to greater significance, Dr Chen replied:

"This is a niche business which is not easy to scale up. You can't say 'Tomorrow, let's increase our production by ten-fold.' "

Powermatic7.16b Powermatic has seen strong shareholder turnout at its past two AGMs. NextInsight photo.Asked about Powermatic's succession plan, Dr Chen, who is 68, said: "I see myself going more into R&D in a few years' time, and Katherine will take over as CEO."

Katherine Ang is one of only two executive directors of Powermatic.

She joined Powermatic's wholly-owned key subsidiary, Compex Systems, in 2003 as director of sales and marketing and operations.

For more, see: POWERMATIC DATA SYSTEMS: Core wi-fi connectivity business on the rise

@ AGM of POWERMATIC DATA: Touching on cashpile, growth prospects, etc

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