Stand Up and SALUTE

Merry Christmas and Happy New Year 2017!!! 

Best wishes to all the readers out there. Recently had been quite busy and i sincerely hope in 2017, i will have more time to interact with all the readers either in blogspot and facebook. Okay, go straight to the main point.

Salutica Allied Solutions Sdn Bhd aka SALUTE is a Malaysian electronics manufacturing company that was founded in 15 October 1990. SALUTE specialises in consumer and business electronic product development like Bluetooth stereo headsets, smart watches and precision light guides for optical touch screen system. SALUTE is an ODM (Original Design Manufacturer). ODM designs and manufactures a product which is specified and eventually branded by another company for sale. Its clients include major American, European, and Japanese electronics and information technology companies[1].

SALUTE's clients[1]

SALUTE's Research And Development (R&D) Department had successfully launched a series of patent pending produces under its own brand "FOBO", which is "For Our Better wOrld". FOBO products such as the world's first all Bluetooth Smart TPMS (Tire Pressure Monitoring System), FOBO Tire, FOBO Bike etc. FOBO is meant to help enhance mankind's daily living through innovative and smart products. Look at how FOBO Tire works by clicking on the link here. For me, it is useful for every drivers, provided nobody will steal the FOBO accessories. FOBO products are sold in 28 countries across Europe, Americas, Middle East, Asia, Africa and Oceania.

FOBO Products

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1. Fundamental Analysis

As SALUTE is just listed on 18 May 2016, we cannot compare the performances prior to 2016. If we compare the Q1 result, for revenue, it increased 15% yoy and 1% qoq. As for net profit, it decreased 31% yoy and 27% qoq. While maintaining the net profit margin of 9% for 2016, the operations for SALUTE is subject to seasonal factors due to the increase in demand for consumer electronic products  during the year-end holiday period in many countries globally[4]. 

Revenue and Net Profit for SALUTE

As the month of October, November and December is categorized as Q2 of SALUTE's financial year, we can expect the last quarter of the year will boost up the sales. There are a lot of Year End Sales (YES) going on all around the world, so for SALUTE, i have an optimistic view on its total sales, revenue and net profit. Based on trending for 2016, the Q2 recorded the highest net profit of RM8,374k. SALUTE is a net cash company RM79,351k. 

In its Annual Report 2016, SALUTE mentioned its dividend policy is 30%[5]. We can grab a few important points in the CEO statement by Mr James. Plantronics and Jaybird are the key customers as they contribute more than 80% of the revenue. 

Snapshot from CEO Statement[5]

The main point is the paragraph above. A USB-powered device that adds touchscreen functionalities to a non-touch laptop screen. It will be a part of the business that will add another revenue stream. This technology will have a transformative impact for everyday users. The product that mentioned is the AirBar - Touch when you need it. Or you can click HERE, this is a short clip about AirBar.

Official AirBar website [6]

AirBar is a product of a US listed company, NEONADE[9]. SALUTE is its assembly partner. What SALUTE did is, they assemble the whole product with cosmetic parts into a final AirBar product, then packaged and shipped to NEONADE's  global distribution partners[10]. 

NEONADE website

Being selected as CES 2017 Innovation Awards Honoree, AirBar is now available in Walmart.com, Bestbuy.com, Amazon.de, qvc.com and staples.com[11]. 

AirBar in Amazon.com [8]

AirBar in Bestbuy.com [12]

AirBar in qvc.com [13]

AirBar in walmart.com [14]

AirBar in Staples.com [15]

Honestly speaking, i do not know the current sales of AirBar and i do not know where to get the sales of AirBar. What i know is that, this thing had actually caught a lot of techie guys' attentions. Try to imagine this thing can be used not only for laptops, maybe in the television, the screen in the operation room, the CCTV monitoring system, it will be a big hit. This thing certainly had a huge potential, but we will not know when they will reach their maximum potential.

In its Q1 2016's geographical segment, the highest goods are delivered to North US (79%), Asia (11%) and Europe (9%). If compared yoy, Africa had declined 80%; while Australia had increased 1,253%. We can say that SALUTE is a company that will benefit by the strengthening of USD, as 99% of its goods are exported, the transactions are denominated in USD. Mostly are exported to North US (79%), Asia (11%), Europe (9%), Australia (1%), Africa (0%), while Malaysia only covers 1%. 

In its Annual Report 2016, we can see that there are a lot of fund houses. There are 17 local fund houses and 1 foreign funds in SALUTE's shareholdings. Just to name a few local fund houses, we have Kenanga Growth Fund, Eastspring Investment, CIMB Islamic Small-Cap Fund, Manulife Investment, OSK Technology Venture, Public Strategic Growth, PB Mixed Asset Growth Fund, etc. Even though SALUTE is still in ACE Market, there are already a lot of fund houses believe in their potential. So, as retailers, should we also believe in SALUTE's potential? As a retailer, we should not believe in the fund houses, we should THINK and ACT like fund houses, after all, we are our own FUND MANAGER~

Recently, the directors are disposed the shares in off market deal[25]. But after we check through, it is actually Mr James Lim's family who are disposing the shares. Mr James is the director and substantial shareholder of Blue Ocean Enlightenment S/B (BOE). And BOE is SALUTE's ultimate holding company. Mr Joshua and Mr Joel Lim are Mr James Lim's son. All of the transactions are disposed in off market in direct business transaction. Our next question is how much they are selling and who are the buyers? Is it because they anticipate the coming result is not good? Or purely, they are selling to another highly interested buyers. As a retailer, i completely have no idea where to dig the information for this. I can only hope that the reason is the latter ones.

Changes in SALUTE Shareholdings

2. Technical Analysis

SALUTE Daily Chart

I had marked 4 October in the chart. It is because SALUTE made an announcement on 30 September that they proposed to be transferred to MAIN Market[16]. On 4 October, the price gapped up but then it was closed down after a few days later. The chart had actually broke the uptrend channel and now it is in a downtrend channel. Notice the volume is actually shrinking down a lot during these few weeks. The current support for SALUTE is 1.23 while the resistances are 1.38 and next 1.45. Technically speaking, it is not so attractive and SMA40 had crossed over SMA20, which means the chart is bearish within this 2 months.

However, i would like to reignite the reason that we should participate in SALUTE is because of its growth strategy and its coming QR. Therefore, if we want to participate in SALUTE, we need to use TA to properly time our entry point. Next, I would like to bring your attention to NEONADE's chart, listed in US Market, with the listed name of NEON.

NEON Daily Chart [17]

On 14 October 2016, there is a gap up with huge volume. When i traced back NEON's announcements, NEON did made an announcement on 13 October. The announcement is about NEONODE moves AirBar end assembly to Asia and scales up the manufacturing of Zforce Air Modules in Sweden[18]. NEON rebounded from the lowest of 0.98 on 13 October to highest 2.19 on 12 December 2016. It is more than 100% increment in just 3 months. Everything happened just after AirBar is launched and marketed.

As the point of writing, i think SALUTE is now lagging behind. NEON already reflects the share price in the chart by going up as much as 100%, but as for SALUTE, from October to December, there is not much price movement. If NEON's this coming QR will be good due to AirBar, as an assembler, SALUTE will be able to reap the high profit like NEON too. With strengthening USD as one of its factor, SALUTE seems to have better advantage.

3. Projection Analysis

The reason why SALUTE is in my radar is because SALUTE is a growth stock:

a) Mainboard Transfer:

In Malaysia market, in order to transfer from ACE Market to MAIN Market, the company must at least obtained a profit after tax of 3 to 5 full financial years with aggregate of at least RM20 Mil and profit after tax of at least RM6 Mil for the most recent full Financial Year.

And SALUTE had qualified for it. Why most of the companies want to transfer to Mainboard? Let's identify what are the benefits of Mainboard transfer?
i) The proposed transfer is expected to enhance company's credibility, prestige and reputation, and accord the company with greater recognition and acceptance amongst investors, in particular institutional investors, thereby enhancing the attractiveness and marketability of shares.

ii) The proposed transfer also signifies the growth of the company and is envisaged to enhance the confidence of the company's customers, suppliers, business associates, employees and shareholders through its profile as a company listed in the MAIN Market of Bursa Securities.

Since SALUTE is related to technology stock, therefore, i will take INARI and ELSOFT for examples:

INARI daily chart

INARI first proposed to transfer to Mainboard on 8 July 2013 and successfully transferred to Mainboard on 29 May 2014[20][21]. The whole process took around 10 months as the company need to submit the proposal to the Securities Commission (SC), and the approvals are subjected to SC, Bursa Securities and lastly the shareholders in the Annual General Meeting (AGM). The share price had also hiked 294.4%, from the announcement date till the transferred date.

ELSOFT daily chart

As for ELSOFT, they first proposed to transfer to Mainboard on 30 May 2014 and successfully transferred to Mainboard on 22 January 2015[22][23]. For ELSOFT, from the proposed announcement to the transfer success, it took around 8 months. The share price increased 101.8%.

SALUTE first proposed to transfer to Mainboard on 30 September 2016, after 3 months, the share price had dropped around 6%. So, we can monitor the transfer progress and also see if SALUTE can emulate the footsteps of INARI and ELSOFT.

b) AirBar and NEON Factor

We can also monitor the sales of AirBar sales through the websites that are shared above. If one day, we found out that all the websites posted "OUT OF STOCK", this means that this AirBar had definitely grabbed the attention of the whole world. If the sales really shoot up a lot, we will see NEON share price hiked up again. So, 2 things we can monitor, the share price of NEON and also the online shopping websites.

c) R&D and Technology

Mr CEO, James in the interview with Bloomberg[24]

This is an interview between Bloomberg and Mr James, the CEO of SALUTE on 21 July 2016[24]. In the interview, Mr James shared about the bluetooth technology in our daily life and how it will impact our lifestyle. For FOBO, we can monitor the tyre pressure; now they are venturing into personal medical healthcare devices, whereby you can track your heartbeat, blood pressure, etc. The data collected from the app will be stored in the cloud and will be used in the future to study and analyse the behaviour. Therefore, he believed that the business is a recession proof. He also aimed to double up the sales of bluetooth devices to 3 to 4 mil in 2016 compared to 2.2 mil sold in FY 2015.

Summary: 

SALUTE is definitely a counter that we should monitor in our watchlist, or perhaps in our portfolio? Wait for a good chance to enter. Therefore, let's stand up and SALUTE!!!

- SALUTE will be announcing its Q2 2017 result in February 2017, which the results consisted of October, November and December.

- During Year End, normally there are a lot of sales and it was expected to boost up SALUTE's revenue and net profit.

- Dividend policy of 30% and it can be a mid term stock in our portfolio.

- Not to forget about AirBar that was also launched in the mid of Q3 and so far it is available in a lot of online shopping websites, receiving a lot of reviews and good feedbacks.

- Bluetooth technology will play a big part in our daily life in the future and this sector is believed to be recession-proof, according to Mr CEO.

- SALUTE is currently bringing in the bluetooth technology into the personal medical healthcare sector.

- With the collected data analytics stored in the cloud, SALUTE will partner up with another company to study and analyse the big data in the future, not so soon.

- In tandem with the strengthening USD.

- Net cash company and is expected to expand its business.

- A LOT of fund houses are inside SALUTE even though SALUTE is still in ACE market and proposed to be transferred to MAIN Market

- One of the benefits after being transferred to MAIN Market is the reputation of the company will be better and grab the attention of the foreign and local fund houses.

- We can look at the examples of INARI and ELSOFT, both of the counters went up to more than 100% within 10 months.

- As of TA, currently, SALUTE is in downtrend due to year end and the buying and selling activities are lesser.

- With its current support of around 1.23, it needs to break the resistance of 1.38 and 1.45 in order to be at the *bright side*.

- If we look at NEON share price, it had went up to 100% after the announcement of AirBar, however, when we look at SALUTE (the AirBar assembler), it is lagging behind and not aligned with NEON.

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Let's Ride the Wind and Gainvest

Gainvestor 10sai

28 December 2016

11.33am

Sources:

[1]: SALUTE Official Website: http://www.salutica.com/
[2]: https://my-fobo.com/Product
[3]: FOBO Tire: https://www.youtube.com/watch?v=Zc4fb0O3Ys4
[4]: SALUTE Q1 2017 Result: http://www.bursamalaysia.com/market/listed-companies/company-announcements/5268717
[5]: SALUTE 2016 AR: http://www.bursamalaysia.com/market/listed-companies/company-announcements/5244125
[6]: http://www.air.bar/
[7]: https://www.youtube.com/watch?v=p6VdbZxBoac
[8]: https://www.amazon.com/Neonode-Airbar-15-6-Display-touch/dp/B01N3MHMSF/ref=sr_1_1?ie=UTF8&qid=1482653610&sr=8-1&keywords=airbar
[9]: http://www.neonode.com/
[10]: http://www.neonode.com/neonode-moves-airbar-end-assembly-to-asia-and-scales-up-the-manufacturing-of-zforce-air-modules-in-sweden/
[11]: http://www.neonode.com/newsroom/
[12]: http://www.bestbuy.com/site/neonode-airbar-sensor-matte-black/5708272.p?skuId=5708272
[13]: http://www.qvc.com/Airbar-for-156%22-Laptops-Adds-Touch-to-Non-Touch-Laptop-Screens.product.E230235.html?sc=SRCH
[14]: https://www.walmart.com/search/?query=airbar&typeahead=airbar
[15]: http://www.staples.com/NEONODE-Airbar-1004-15-6-PC-Displays-Touch-Bar/product_IM14X0415
[16]: http://www.bursamalaysia.com/market/listed-companies/company-announcements/5219825
[17]: https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1482676147445&chddm=46920&chddi=86400&chls=CandleStick&q=NASDAQ%3ANEON&ntsp=0&fct=big&ei=1tVfWOCJHNC9uQTdrq-AAw
[18]: http://www.neonode.com/neonode-moves-airbar-end-assembly-to-asia-and-scales-up-the-manufacturing-of-zforce-air-modules-in-sweden/
[19]: http://www.smeinfo.com.my/index.php?option=com_content&view=article&id=1148&Itemid=1156
[20]: http://www.bursamalaysia.com/market/listed-companies/company-announcements/943445
[21]: http://www.bursamalaysia.com/market/listed-companies/company-announcements/3656433
[22]: http://www.bursamalaysia.com/market/listed-companies/company-announcements/1123237
[23]: http://www.bursamalaysia.com/market/listed-companies/company-announcements/3656441
[24]: http://www.neonode.com/salutica-ceo-talks-about-future-growth/
[25]: http://www.bursamalaysia.com/market/listed-companies/company-announcements/#/?category=all&sub_category=all&alphabetical=All&company=0183