Plover Bay Technologies' (1523.HK) 2023 results show solid earnings trajectory
Shares up 13% despite moderate revenue growth, while profits surge. Stock's strength lies in consistent dividends, growing recurring revenues, and niche market offering.
Yesterday, we hopped on Plover Bay Technologies’ (1523.HK) (“Plover Bay”) FY23 earnings call to see how our long-term bullish thesis on the Company is holding up.
The full-year results came on the heels of our well-received interview with the Company’s founder and CEO, Alex Chan, in which he shared his insights on leadership, vision, and growth prospects. For those of you who didn’t tune in. Plover Bay manufactures routers and sells subscriptions for always-on 5G connectivity, accessible from anywhere in the world.
Overall, the Company delivered robust financial performance in FY23, though its revenue growth sat at 8.4% (market expected mid-to-high teens growth), but net profit also increased a respectable 24%. The stock is up 13% since the results announcement yesterday. We believe this reflects the underlying value of the Company and its long-term sustainable growth prospects. Plover Bay's strategic focus on partnerships, supply chain resilience, and commitment to shareholder value through dividends seem to position it well for long term appreciation.
Let's delve into the factors influencing this and explore their strategic moves for the future.
Factors that impacted revenue growth in FY23
High velocity sales approach: Special pricing and discounts offered to partners to secure deals impacted near-term revenue.
Partner-centric focus: Prioritizing partners' margins over short-term revenue, treating them as extensions.
Macroeconomic volatility: Strong USD affected demand in non-USD countries, leading to prolonged purchase decisions.
Geopolitical and economic uncertainties: Broader uncertainties caused some demand to be deferred.
In summary, maintaining the high-velocity approach and partner economics was prioritized over aggressive short-term revenue targeting.
Plover Bay's relationship with Starlink
Integrated solution: Signing on as Starlink’s first authorized technology provider to provide bundled solutions, enhancing reliability and easing deployment for customers.
Early mover advantage: Plover Bay getting their foot in the door and hopefully entrenching the relationship offers a compelling value proposition.
Revenue potential: Management is optimistic about this arrangement’s contribution to future revenues as it gains traction.
As covered in our interview, Plover Bay seeks to differentiate itself through its cooperation with Starlink and unsurprisingly, this featured extensively on the earnings call. According to a company press release, Plover Bay’s Peplink solutions have already been deployed alongside Starlink satellite terminals on a large cruise ship, greatly increasing reliability and speed of onboard connections and reducing costs. While still nascent, management is bullish this will contribute materially to revenues in the future as the integrated solution gains more traction.
Supply chain resilience
Plover Bay management mentioned that its practice of outsourcing to reliable tier 1 contract manufacturers in Taiwan has mitigated supply chain risk. Common chips used are from Qualcomm, which are standard WiFi/cellular connectivity components. Input costs are expected to remain steady this year.
Revenue growth and margin expectations
Targeting the next USD 100m revenues: Emphasizing network effects, partnerships, and organic growth over to achieve this milestone faster.
20%+ revenue growth target: Management hopes to return to this rate achieved in previous years. While the team understands that they did not achieve its topline target in FY23, they also recognized that their approach was operationally sound given the macro and geopolitical backdrop. They won’t compromise to reach short term targets based on unsustainable actions or decisions.
Maintaining margins: Expectations of sustained high gross margins. Input costs not expected to change in 2024 barring black swan events.
Qualitative expectations are for a return to faster top-line growth alongside continuation of industry-leading margins, through balancing organic efforts with initiatives like partnerships. 20% revenue growth appears to be a high internal target, but a fairer assessment is for mid-to-high teens growth trajectory and continued expansion of the Company’s recurring revenue base, which they themselves seem confident about. It is noteworthy that for FY23, 30.4% of overall revenues are recurring (subscriptions etc.), up from 23.4% in FY21.
Sustainable dividend policy
Shareholder value: Excess cash returned to shareholders through consistent and substantial dividends.
Steady dividends: Dividends maintained to signal confidence in profitability, unlikely to be reduced for M&A unless a major opportunity arises.
Owner-operator structure: Prudent decisions guided by maintaining ownership culture within the management team.
Historical 90%+ dividend payout ratio: Demonstrating commitment to shareholder returns over the past six years (97% payout on FY23).
In essence, Plover Bay aims to pay a reliable and high dividend supported by its consistent profitability, balancing shareholder returns with funding organic growth.
Full disclosure: We hold shares in Plover Bay Technologies (1523.HK).
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New to looking at HK markets. Where does one get info for earnings calls? There's no company announcements for this, unlike where I'm from (Australia). Thanks!