Nextnation Communication Bhd (“Nextnat”) is principally involved in the development & provision of engine/solution for mobile gaming as well as the provision of Internet and wireless technologies & related value-added services. The group has developed a full service mobile game engine for interactive mobile game development, hosting & worldwide deployment, which enables it to strengthen its foothold in this fast-growing field.
Note: I've posted on this stock in October last year, but the stock has not moved up much since the post (here).
Recent Development
In early March, Nextnat was in the news, in an unfavorable way. One of its subsidiaries, Nextnation Communication Berhad was penalized by the Malaysian Communications and Multimedia Commission ('MCMC') for spamming activity. Nextnat has explained that the spamming activity was the act of its partner content providers, as the subsidiary concerned is only a mobile application service provider. The infringement has since been rectified & Nextnat does not expect the incidence to have a material financial impact (go here for Nextnat's announcement on this matter).
Recent Financial results
Nextnat has just announced its result for QE31/1/2007. For that quarter, its net profit increased by 25.2% q-o-q or 48.2% y-o-y to RM6.4 mil while its turnover gained 4.2% q-o-q pr 60.4% y-o-y to RM28.2 mil (see Table 1 below).
Nextnat's past 3 years' performance has been very impressive. From Table 2 below, we can see that its turnover has increased by about 50% for the past 2 years while profit after tax has grown by about 33% fro the same periods. (Comparison for the latest FY2007 is based on an annualized 12 months period).
Valuation
Based on the last 4 quarters' results, Nextnat's full-year EPS is about 8.2 sen. At a closing price of RM0.58 (as at March 28), Nextnat is now trading at a PE of 7 times only. This is very attractive for a company with such a strong growth record. I think the fair PE multiple for this stock is of at least 12-15 times, which would place the target price for Nextnat at RM1.00-1.20 level.
Technical Outlook
Nextnat's share price does not, however, reflect its otherwise good financial performance. For the past 5 months, the share price has been in a downtrend with resistance at RM0.60. A break above RM0.60 could be the beginning of better times ahead for this stock. Or, is it another false move, like the false bullish breakout in mid-February, only to be followed by a false breakdown a few days later? I think we have to live with that risk & still proceed to act on a BUY signal if the share price were to break above RM0.60.
Chart: Nextnat's daily chart as at March 28
Conclusion
Nextnat is a very attractive stock, trading at a PE of 7 times. While the technical outlook is nothing to shout about, I believe the stock is worth track for slow accumulation now or for buying if it break above the RM0.60 level.
Hi Alex, do you know what is driving nextnation's share price down lately? The latest SMS scam by its subsidiary? Or the high receveiable in its account?
ReplyDeleteThe company was a victim of 1 person's agenda which escalated to another 1 persons pride. The former is Uncle Lim, the laterst is Jeff Ooi. Read this blogger http://mobilebedsidenews.blogspot.com/2007/05/akn-mtechs-uncle-lim-man-who-kills.html
ReplyDeleteThe company provides services to China and Saudi Arab, which has very strict requirement on SMS security, they would not risk their business for few ringgit scam. As the report provided by MCMC shows that all their accusations were either innocent technology error even Microsoft cannot guarantee error free, or end consumer own mistake. It's childish for anyone to speculate and make assumption like the stupid Jeff Ooi without knowing the actual scenario.
The company as seen from their announcements is moving away from low margin market like Malaysia to higher margin countries. Some mistake they may have made is growing too fast, where more business means more receivables. Some country they went may not be as good pay master as Malaysia, example China and India. In short run they may face cash flow problem. In short run, I don't see any super progress unless their investment paid off sooner. Just like the telcos, even Maxis has to delist themselves during the heavy investment period which shows ugly results. Not to mention a small telco supplier like Nextnation. My 2 sen from telco point of view.
Zul TM