Baylin Technologies (TSX:BYL) got off to a rough start in the public markets, but the company is poised for a rebound, says Cormark analyst Richard Tse
In a research report to clients this morning, Tse initiated coverage of Baylin with a “Buy” rating and one-year target of $5.00, implying a return of 57% at the time of publication.
Tse says he likes Baylin because the company has an expanding portfolio of innovative antenna technologies, a strong record of manufacturing performance, and a multi-pronged growth strategy. He thinks the company will benefit from organic sales driven by industry tailwinds such as the demand for more data capacity, from an expansion into Vietnam that should strengthen its ties to Samsung, and from the potential for acquisitions.
Founded in 1978, Baylin Technologies has decades experience in designing, producing and supplying antennas. The company says its growth is being paced by the rapid growth of mobile devices, which has resulted in a need for increasingly complex, innovative and highly engineered antennas. The company’s customers include Motorola, Nokia and Vodafone. Baylin began trading in November of 2013 after raising $50-million by selling 6.25-million shares at $8.00.
Tse notes that Baylin was a supplier of antennas to Samsung since 2005, but lost business with the company after it could not supply a waterproof antenna for the Galaxy S5 device. But Tse says that subsequent reliability issues in the S5 suggests there is a high probability that Baylin will be back in the Galaxy S6, which will be unveiled at the 2015 Mobile World Congress in March.
Tse also believes Baylin simply isn’t being given enough credit for its intellectual property, which he believes could attract an new OEM that would diversify the company’s revenue base.
“With 10-15% of sales or $35 MM+ spent on R&D over the past five years, we see considerable value in Baylin’s IP. A large portion of that spend has been put toward next generation 4GA and 5GA antenna technology where Baylin has registered several patents and trademarks. In fact, we believe its 4GA antenna technology has the company in “substantive discussions” with a number of OEMs beyond Samsung,” he said.