Global Invacom - much promise, but not yet 'ready to launch'

SOME companies are easier to dress up than others and while they do many things right by the market, they are somehow still never vogue enough.

One company that suffers from that is Global Invacom - the only satellite communications equipment provider listed on the Singapore Exchange and "uniquely" (in its own words) also listed on London's AIM.

The mainboard-listed firm touts itself as one of seven companies in the world that design, develop, produce and supply satellite communications solutions to satellite broadcasters - clients include UK's BSkyB and Dish Network of the US - and Data Over Satellite (DOS) providers such as Hughes Network Systems, Viasat and Gilat Satellite Networks.

While Global Invacom shares generally draw low interest from institutional investors, retail investors orbit the counter for some sweet and quick gains.

The SGX's investor education portal My Gateway last month listed Global Invacom as one of 10 hottest stocks in the year to mid-December that outpaced the local bourse's key Straits Times Index (STI), sharing that stage with other non-STI stocks such as Rex International Holding, AEM Holdings and Hi-P International to name a few.

For the first 11 months of 2019, it even bested the much-loved S-Reits and came out tops in terms of total returns of 337 per cent.

The stock's strut however belies its watch-list status, a stark reminder that it risks being booted out of the exchange. In Global Invacom's case, it found itself on that list in June 2018 after falling short of the minimum trading price (MTP) rule of 20 Singapore cents.

At around 12 Singapore cents now, the counter has some way to climb out of that abyss - not for want of trying though.

In October 2018, the company - that also makes satellite dishes for Malaysia's Astro - took a stab at a reverse takeover in a bid to pull itself out of SGX's watch list by the June 2021 deadline.

The deal involving Malaysia-based Tactilis - that makes and distributes biometric system-on-card solutions - was hoped would create an "enlarged technology company" and "open an exciting chapter of growth" but it bummed mid-way through the long stop date last year.

Frankly, that outcome is less bad than it sounds.

In fact, Global Invacom had likely dodged a bullet by taking heed of the market's scorn as the deal valued Tactilis at US$200 million, an exorbitant price tag for a company that made losses of US$2.36 million in 2017 and US$1.2 million in 2016.

By mid-December 2018, its stock had plumbed to a low of two Singapore cents, down nearly 70 per cent from pre-announcement levels. Just as quickly, it had gained composure to over six Singapore cents when the deal was aborted in April 2019.

This may also partly explain the stock's outperformance last year.

Not all ties have been severed though.

As part of the deal, Global Invacom agreed to provide a US$2 million convertible loan to Tactilis. According to its latest annual report, the group has invested a total of US$1.5 million in the convertible notes in Tactilis and the interest accrued from the date of drawdown to the reporting date was US$11,000. These notes mature on Oct 24 this year.

Then a week ago, the company disclosed that the pains of the US-China trade spat and resultant higher tariffs on steel have put pressure on its Chinese operations which account for one fourth of its manufacturing activities. It also has operations in the US, UK, Israel and Malaysia.

Already faced with the stress of rising wages and production costs in China, Global Invacom has decided to shut down its Shanghai facility and relocate to the Philippines. The relocation will be done and dusted by mid-year.

In turn, the US operations in Smithfield, North Carolina will become the group's largest in-house facility.

The company said it was banking on robust demand for DOS products amid the race to offer Internet service from low orbits that have already seen Elon Musk, Jeff Bezos and Google's parent Alphabet battling it out in this space.

While it was a nicely packaged story, investors snubbed the company's five-pronged strategy articulated over six pages and chose instead to focus on the bad news - the firm warned that as a result of a one-off, non-recurring charges related to the closure of Shanghai operations, it expects to record a net loss in FY2019 from a profit of US$1.5 million in 2018.

Tony Taylor, Global Invacom's chief executive, told The Edge Singapore that the loss is "quite large".

The disappointment is even more acute considering for the nine months to September 2019, Global Invacom's net profit tripled to US$1.8 million on the back of a 22 per cent jump in revenue to US$104 million.

The stock shaved off 5 per cent to 13.8 Singapore cents on the day of the announcement and has been on a slide since.

It's hard not to wonder - was Global Invacom aiming for a positive market response by pairing the bad news with the strategic plan, hoping investors will think it's got this?

If so, that would have been expecting too much, more so as the risk of being delisted looms - unless of course, the company gets its act together or even better still, SGX drops the MTP rule by then.

Truth is, in the stock market's long runway, investors generally tend to be short-sighted and reactionary. Maybe next time, best let the bad news precede the good - separately.