Anacle Systems - a preliminary look: +20% gain possible. Disrupting the BEM market.
Hi folks, because of time constraints, I don't have the time to write out a deep dive into the analysis of Anacle Systems. Although this is a superficial look, but let's just say that I've got my eye on it, and that the story and chart look very interesting.
Anacle Systems Ltd (HKG: 8353) is a good position to tap on the EAS and retrofit BEM segment in SG and Asia. Management is Singaporean, and their CEO is a fellow alum from Cornell University. I think I'm probably biased here.
Drawing from a comprehensive report from Crosby (1 March 2017) that give Anacle a target price of 0.98, simply put:
Anacle's key EAS product, Simplicity (2nd leading market position in 2015) will benefit from the commercial property management software market growth rate of 13.1% in 2015-2020.
Anacle has growth drivers in Starlight, which is tethered to the retrofit BEM segment due to the proposed liberalization in Singapore energy retail market in mid-2018. Singapore already committed to being a "Smart Nation".
Other further out products are in the form of SpaceMonster and myBill.sg.
We like the fact that Simplicity is entrenched with government authorities and REITS, and hence contracts are more sticky; with a catalyst of growth in Starlight coming in mid-2018.
A video of Starlight:
The Kicker: Anacle is in possession of what seems to be market disruptor in the App-Eco-System space.
An article published very recently by The Peak says:
Alex was awarded as one of Singapore’s Top ‘Disruptors and Innovators’ when he introduced the ‘Tesseract’.
An edge computing device with 64-bit computing power and 10GB in-device storage encryption capabilities, vastly surpassing the industry standard. With the very first in the world EMC-safe capacitive touchscreen. That brings an unparalleled user experience and interface flexibility.
The ‘Tesseract’ is future proof with it’s App-Eco-system architecture. Enabling it’s capability to be expanded via the installation of ‘on-demand’ management Apps. Like many Android based Smartphones, the ‘Tesseract’ is an open invitation for developers to create applications that will upgrade the data collecting device’s functionality. By doing so, it is creating a whole new R&D landscape that was previously non-existent.
My dude, they actually called their gadget a Tesseract. A Tesseract! That's the first thing that caught my eye, because a Tesseract is in four spacial-dimensions... in order words, it cannot exist in our present reality in physical form.
In geometry, the tesseract is the four-dimensional analog of the cube; the tesseract is to the cube as the cube is to the square. Just as the surface of the cube consists of six square faces, the hypersurface of the tesseract consists of eight cubical cells. The tesseract is one of the six convex regular 4-polytopes.
Are they implying their gadget is out of this world? That would be be really useful for extra-normal earnings growth rates. Just saying.
I think I watch too much Stranger Things.
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With already sticky contracts, and a new sector of retrofit BEM due to the liberalization of Singapore's energy market opening out WITH a industry disrupting product to boost, the potential seems very robust.
Speaking about being out of this world, you know what else is out of this world? This chart!
After a big consolidation from Jul-17 to Nov-17, it spiked from 60 cents to 1 dollar in one day, and is now consolidating in a bull flag-like formation. No doubt that 1 dollar spike is a sign that some people recognize the potential in this company, hence the new interest and volume. Low volumes also imply that not many people are aware of this stock and could explain partially why the stock is trading at a discount.
Brief financial update:
Anacle has reported a net profit of S$0.31 mn for the quarter ending August 2017 (1Q FY2018). In the same quarter last financial year, it had reported a loss of S$1.26 mn due to one-time listing expenses. Simplicity has continued to deliver largely comparable revenues, down just 5% yoy, due to seasonal fluctuations. Management is confident that over the full FY18, Simplicity will continue to register strong growth. Starlight has shown a marked increase in revenue up 85% yoy as this business segment begins to contribute meaningfully to overall revenues. Project based revenue is up 213% while recurring maintenance and rental revenue is up 213% and 166% respectively. Management expects Starlight to be a significant contributor to overall growth in FY18.
At the price of 0.73 HKD, the market cap is 295M HKD, or around 52mn SGD. Annualizing last quarter's earnings yields a PE of ~40x But management is confident earnings will grow. Hence, having an eye on next 2 quarters will be very important.
The balance sheet, however, is very healthy. It's net current assets grew to S$12,972,279 (May 2016 : S$ 4,001,066) , this is roughly 20% of it's market cap; and cash grew to S$7,134,663 (May 2016 : S$ 2,773,551).
Conclusions:
Pros: Story is intriguing. Great sector to be in based on the bullish nature of the Internet -of-Things (IOT) market. Singapore is also focusing on being a "Smart Nation". Tesseract is a potentially disruptive product. Anacle already has contracts to be profitable. Catalysts include new sector of the market opening up by Singapore's liberalization of the energy market, hence a great demand for energy monitors for buildings. They already have connections with government contracts.
Balance sheet healthy with a net cash position.
Cons: Their earnings growth is lagging the Crosby's report, we will have to see next quarter if growth rates continue. But if it does ... ... that looks good.
The chart sure looks like it's due to another move up. The next easy target out be around 90 cents, a 20% move from here.
A new contract win, or if the next quarter continues their revenue growth might do it.
Cheers!
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** The author of this post has a long position in Anacle.
