Gilat Satellite Networks Ltd.

GILT Details

A String of Contracts to Culminate in Progressive Growth: Gilat Satellite Networks Ltd. (NASDAQ: GILT) is a global provider of satellite-based broadband communications. On 28 June 2021, GILT announced that it received orders valuing $9 million for supporting Low Earth Orbit's (LEO) gateway. On 16 June 2021, GILT announced its entry into multiple armed forces projects in Latin America in facilitating solutions for fixed, maritime, airborne, and mobile military applications. On 10 June 2021, GILT announced it has won contract for supplying satellite communication equipment for defence purposes. Moreover, GILT was chosen as the sole supplier of address defence connectivity requirements.

Q1FY21 Financial Highlights: Despite a decline in revenue, GILT registered a gross profit of $12.36 million in Q1FY21, up from ~$8.89 million reported in Q1FY20, reflecting increased operational efficiency. Cash Balance declined from ~$88.75 million as of 31 December 2021 to ~$48.91 million as of 31 March 2021, primarily driven by dividend payment of ~$35 million. In consequence of lower operating losses, adjusted EBITDA recovered partially from a loss of ~$4.99 million in Q1FY20 to a loss of ~$1.43 million in Q1FY21. Progress in the strategic growth of Cellular Backhaul, NGSO and additional orders for LEO constellation, in-line with Solid State Power Amplifiers (SSPAs) solutions, culminated in strong momentum.

Operational Highlights; Analysis by Kalkine Group

Strategic Developments Along the Quarter: GILT entered into a multi-million-dollar strategic agreement with a Government Corporation in the Asia Pacific to facilitate nationwide network coverage for a set of applications. Moreover, GILT received over $5 million for Cellular Backhaul Expansion from a Japanese Tier-1 mobile network carrier. On Infrastructure front, GILT launched a next-gen VSAT, a cloud-based network platform, supporting 5G networks together with LEO/MEO Constellations.

Key Risks: The company faces high competition risk amidst intensive price wars. High operational risks revolve around satellite-based companies, for instance, network outage. Further, COVID-19 turmoil exhibit uncertainties.

Outlook: Except for IFC Market, the company seeks decent momentum across all business units. Approval for entering operational phase in Peru unlocks access to recurring revenues. GILT's selection by Telespazio to supply enterprise connectivity diversifies the client portfolio. GILT was selected by Brazil's SES to facilitate an infrastructure of 4G/LTE MNO for broadband connectivity in the education field.

Stock Recommendation: Over the last month, the stock of GILT went down by ~0.793%. The stock made a 52-weeks’ low and high of $4.80 and $22.69, respectively. On the TTM basis, the stock is trading at a price to book multiple of ~2.50x, lower than the industry (Communication & Networking) median of ~3.65x.  Considering the current trading levels, strategic government agreement, opportunities explored in Brazil, customer base diversification, valuation on a TTM basis, and critical risks associated with the business, we give a ‘Speculative Buy’ rating on the stock at the current market price of $10.01, down by ~2.53% as on 28 June 2021.

GILT Daily Technical Chart, Data Source: REFINITIV 

Taoping Inc.

TAOP Details

Strategic Agreement with ZETDZ to Explore Growth Avenues: Taoping Inc. (NASDAQ: TAOP) is involved in blockchain technology and cloud-based services that build intelligent display screens for advertising and online retail. On 11 June 2021, TAOP announced entering into a strategic agreement with Zhenjiang Economic and Technological Development Zone (ZETDZ) for the east China expansion project, which includes the establishment of Taoping G cloud data centre, development and sale of Taoping digital servers and launch of an operation centre for digital business expansion.

Introduction of New Server Products: On 28 May 2021, TAOP announced the launch of GY3070 Pro and GY2060S server products to cater to ultra-high performance and explore growth opportunities in digital business. Both servers are equipped with RTX2060 Super 8G graphics and RX3070 8G graphics with reference hash rate of 320 MH/s and 480 MH/s, respectively.  The servers shall provide TAOP a competitive edge, being a multi-application infrastructure.

Financial Insights from FY20: As a result of the COVID-19 impact and sequential impact on the out-of-home advertising market, the revenue drained from ~$13.8 million in FY19 to ~$11.0 million in FY20. As a result of high investment outflows, TAOP’s cash balance declined to ~$0.88 million at the end of FY20 relative to ~$1.52 million at the end of FY19. Loss from operations significantly increased from $4.2 million in FY19 to $17.4 million in FY20, primarily attributed to an increase in credit loss allowance of $10 million. Weakened new-media industry in pandemic environment culminated to a working capital deficit of $17.4 million as of 31 December 2020 as compared to a deficit of $7.0 million as of 31 December 2019.

Revenue Highlights; Analysis by Kalkine Group

Key Risks: The company's business is prone to technology obsolesce. There is a high requirement for prudent credit risk management to minimise working capital deficit. An undiversified revenue portfolio exhibits high systematic risks.

Outlook: TAOP expects a significant surge in FY21 revenue to $40-50 million due to build-up of new revenue streams and contribution from Taoping New Media. Subsequently, TAOP forecasts $8-10 million in operating income. TAOP is constantly exploring new growth avenues as warranted by introducing Taoping G Cloud Data Center in blockchain and digital asset business.

Stock Recommendation: During the first half of 2021, TAOP executed multiple agreements and partnerships to expand current cloud-based operations and explore opportunities in blockchain operations. TAOP signed a purchase agreement of a Bitcoin mining machine with Bitman Technologies Limited, which extrapolates to ~$24 million in order value. On the TTM basis, the stock is trading at an EV/Sales multiple of ~7.00x, lower than the technology industry median of ~12.50x. Over the last month, the stock of TAOP went down by ~12.69%. The stock made a 52-weeks’ low and high of $1.93 and $16.86, respectively. Considering the current trading levels, execution of multiple agreements and contracts, the recent uptrend in cryptocurrency volumes, diversification of segment portfolio and critical risks associated with the business, we give a 'Speculative Buy' rating on the stock at the current market price of $4.68, down by ~4.29% as on 28 June 2021.

TAOP Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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