SINGAPORE (July 13): NRA Capital has updated its “overweight” rating on Telechoice International with a higher fair value of 34 cents. The revision follows the group’s recent acquisition of MVI Systems.

While the transaction reveals long-term growth ambitions, NRA is heading into the 2Q16 results reporting season with muted expectations for the group. The research house expects earnings to be similar to that of the previous quarter, assuming similar performance in the ICT and Engineering segments.

According to a Tuesday report, analyst Liu Jinshu expects the Personal Communications Solutions (PCS) segment to deliver better performance than that of the previous quarter due to the launch of new Samsung products. He also expects dividend payouts to remain intact, supported by the group’s strong balance sheet.

Liu notes that Telechoice is operating in a mature market for its products and services. Hence, each new model of mobile device or accessories introduced by key principals such as Samsung, LG, Sony and Huawei are less likely to result in high growth due to its relatively high smart phone penetration in Singapore and its small exposure to the Malaysian retail market.

However, the research house has identified longer-term growth drivers for Telechoice in the media and Virtual Reality (VR) technology sector. These will help the company to deliver higher growth in spite of limitations imposed by existing services, says Liu.

On that note, the group’s recent acquisition of a 25.19% stake in MVI Systems appears to be a move for the future. The research house believes that MVI’s IP video gateway technology, which allows hotels and multi-dwelling unit operators to offer high quality video services to end customers, will help to drive Telechoice’s growth in the future as it leverages on demand for media delivery solutions arising from growth in interactive media and as consumers demand for interactive High Definition content.

Moreover, the investment is potentially profit-accretive, as TeleChoice will be entitled to a larger stake of MVI if it does not generate a 12-month net profit of S$1.84 million, says Liu.

Liu also notes that while the PCS segment will slow as a growth contributor, it will still provide upside from the sale of devices such as VR headsets once adoption crosses critical mass.

These two trends and opportunities suggest longer term potential for TeleChoice to deliver growth and raise dividends, thus unlocking value, Liu says.

As at 11.25am, Telechoice was down 3.6% at 26.5 cents.