Baylin Technologies is extremely undervalued, this investor says

If you’re looking for good bang for your buck in the technology field, you should be thinking wireless tech company Baylin Technologies (Baylin Technologies Stock Quote, Chart, News, Analysts, Financials TSX:BYL). Portfolio manager Stephen Takacsy says the post-pandemic economic pickup will be driving Baylin’s business, while the stock remains currently oversold.

“Baylin is a world leader in wireless technology for mobile phones and embedded systems like set top boxes, infrastructure like the 5G networks and satellites. As leaders in wireless antenna they have a global market,” said Takacsy, CEO and chief investment officer at Lester Asset Management, who spoke on BNN Bloomberg on Wednesday.

“Baylin hit a few speed bumps over the last year or so, and the pandemic obviously didn’t help,” Takacsy said. “There were some delays in the infrastructure spending in the US by the likes of AT&T and so on but that’s now resuming. They also had trouble finishing their plant in Vietnam due to the pandemic, but that should be upgrading towards the second half of this year.”

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Baylin was above $4.00 in mid-2019 but that was before a bunch of bad news dropped the stock to around a buck by the start of the pandemic pullback last February. BYL flatlined from there and after briefly rising to $2.00 a couple of months ago, the stock has been once again on the skids, down 17 per cent since the start of March.

Baylin has had a number of challenges in recent years, for example, in early 2020 when it had to take a $13-million impairment charge related to two of its acquisitions, Advantech Wireless and Alga Microwave, both bought in 2018. Baylin said legacy issues related to the two companies were the cause, where integration faced some materials problems.

Business disruptions related to COVID also came into play, and Baylin breached its debt covenants in early 2020. The company responded with cost reduction efforts, while its credit agreements were amended. The company’s Wireless Infrastructure revenue took a particular hit during the pandemic, and Baylin finished 2020 with revenue down 22 per cent year-over-year to $119.7 million and EBITDA cut in half to $6.4 million.

But 2021 has been better, with the company picking up new customers and big orders as economies opened back up and communications companies went back to building out their 5G networks.

“Although COVID-19 is continuing to have an impact on our financial results in the first quarter of 2021, which we expect will result in a comparable quarter to the fourth quarter of 2020, we nevertheless remain optimistic that financial results will improve in 2021,” Baylin said in its fourth quarter 2020 press release.

Takacsy said the drop in share price has now gone too far, making for a good buying opportunity.

“The stock is extremely undervalued if you look at the comps. They’re trading at least two times the valuation of Baylin,” Takacsy said.

“Baylin also had a bit of a balance sheet situation where their debt level was a little on the high side, and that’s been addressed. They did an equity raise and warrants have been exercised, and they’re lowering the conversion price of the convertible debentures, so most people would naturally convert those,” he said.

“So, the balance sheet is repaired and [there’s] the turnaround and recovery in the economy and in most of their markets, so we think this is going to be a very good performing stock for the rest of this year,” Takacsy said.

“The first quarter may be a little on the weak side from last year but going forward I think they’ll be firing on all cylinders for the remainder of the year,” he said. “Baylin, we actually own six to seven per cent of the company so we’d better like it.”

Baylin announced this week approval of two new base station antennas by a major Tier 1 US carrier for its 5G network, a “significant achievement,” the company said. The antennas are designed by Baylin subsidiary Galtronics USA, which recently launched a new line of multibeam base station antennas which the company says deliver better performance in a smaller design and at a more affordable cost than what’s on the market today.

Baylin said its multibeam antenna line will compete directly with antennas that have been the standard over the past decade, with the Galtronics technology having resolved a “beam squint” issue typically occurring in traditional antenna.

“Our successes in designing products for the Small Cell and DAS arenas have given our customers confidence that Galtronics can also supply macro antennas for their 5G networks,” said Galtronics president and CTO Miny Gavrilovic in a April 27 press release. “These antennas provide ideal solutions that allow carriers to continue their 4G deployments while future-proofing their near-term 5G C-band needs simultaneously.”

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