This is an excerpt from NRA Capital’s research report on Addvalue Technologies Limited.

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Enters space industry with new product

Addvalue Technologies Limited (Addvalue) announced on 12 April that it will be raising about S$6.0m to fund its space programme. It turned out that Addvalue has successfully tested a 20x10x10 cm terminal that when installed in low earth orbiting (LEO) satellites, will be able to send and receive data with higher orbiting geosynchronous (GEO) satellites; and Addvalue has signed a Memorandum of Understanding with global satellite communication company Inmarsat in February to roll out the world’s first commercial on-demand inter-satellite data relay service (IDRS).

Background

LEO satellites orbit out of line-of-sight with a single ground station within minutes and require a network of several overarching GEO satellites or a chain of global ground stations for 24/7 availability. Such infrastructure is costly. NASA’s data relay satellites and ground stations primarily serve its own missions, followed by that of other U.S. government agencies. Third party users are vetted by NASA before being allocated available slots (if any), with lengthy waiting periods of up to months.

First-mover advantage

The larger impact is that Addvalue’s product adds data relay capability to Inmarsat’s global constellation of GEO satellites, thus providing a low-cost, globally available and convenient communication solution for LEO satellite operators. This is important due to the growth of commercially launched satellites and space travel missions in recent years. With Inmarsat’s existing user base and infrastructure, the marginal cost of providing space data relay services is low, thus translating into a sustainable competitive advantage. For Addvalue, it has a first mover advantage with the first proven prototype terminal for Inmarsat.

Existing business likely to break even or turn profitable in FY18

We are also optimistic about Addvalue’s existing satellite terminal business. Some of the factors that have affected sales in FY16 have started to wane. Inmarsat has recently launched the new Fleet Xpress broadband service and is performing about 150 installations per month. Customers have previously held back purchases as they await this new service. In addition, new models and marketing initiatives such as the Wideye iFleetOne and Inmarsat tie-ups with mobile network operators are expected to boost sales.

Potential valuation of 7.9 cents per share

We expect Addvalue to secure its first IDRS contract within this year for shipment in 2019 or 2020. Speedy contract wins will be a boost to confidence. To ensure recurring income, Addvalue plans to distribute Inmarsat airtime in space and thus earn a share of the airtime revenue. Our crude calculations indicate a potential value of S$86.84m for the IDRS business and S$46.76m for the existing business. That said, we recognise that new ventures are risky and refrain from providing a rating, pending new contracts.

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