Netcomm Wireless Ltd Buy

Well positioned in the high growth global M2M segment

Technology Hardware & Equipment 31 July 2014

Analysts

Todd Guyot61 (2) 8288 5407todd.guyot@moelis.com

All figures are in AUD unless otherwise specified.

Initiating CoverageTicker NTC

Stock Price $0.710

Target Price $0.95

Forecast Total Return. 33.8%

Company market data

Market Cap. $91.5m

Enterprise Value $94.8m

52 week range $0.19 - $0.83

Shares out. 106.3m

Estimates changes 2013a 2014e 2015e 2016e

Core NPAT - new (0.5) 0.7 3.2 7.8

Core EPS dil. (cents) - new (0.5) 0.5 2.5 6.0

DPS (cents) - new 0.0 0.0 0.0 0.0

Share price performance

0.90

0.80

0.70

0.60

0.50

0.40

0.30

0.20

0.10Jul-14May-14Mar-14Jan-14Nov-13Sep-13

NTC vs. ASX Small Industries (XSI) (rebased index)

NTC ASX Small Industries (XSI) (rebased index)

Moelis Australia Securities Pty LtdAFS Licence 308 241

Y/E June 30 2013a 2014e 2015e 2016e

EBITDA 0.8 5.1 8.5 14.2EV/EBITDA 118.0x 18.1x 10.5x 5.9xCore NPAT (0.5) 0.7 3.2 7.8

 

Core EPS (Diluted) cents (0.5) 0.5 2.5 6.0P/E (142.3)x 133.3x 28.6x 11.8xEPS growth (134.3)% 366.4% 142.5%

 

DPS (cents) 0.0 0.0 0.0 0.0Yield 0.0% 0.0% 0.0% 0.0%Dividend Payout Ratio 0.0% 0.0% 0.0% 0.0%Net Tangible Assets ($/share) 0.10 0.11 0.13 0.18

All figures are in AUD.

Moelis ViewWe are initiating coverage with a BUY recommendation, with ourview that the stock offers an attractive risk / reward proposition giventhe groups positioning within the high growth global M2M industry,anticipated to increase in size from ~US$39bn in FY13 to >US$66bn by2016; NTC has already secured a number of potentially large contractsthat are anticipated to ‘ramp up’ from FY15 that will provide increasingscale benefits, whilst other selected industry ‘verticals’ continue to beactively pursued.

Earnings ImpactN/a.

Investment Thesis- we consider NTC is well positioned to capitalise on the growth of theglobal M2M (ie. Machine-to-Machine) market, involving the exchangeof information between machines using a cellar network without humanintervention; importantly, a number of potentially large contracts havealready been secured, including with Vodafone Global Enterprises (VGE)as their supplier of M2M IP modems for international deployment.

- M2M verticals being actively pursued include Utilities, Healthcare,Transportation, Business Services and Building Automation, with anumber of differing sales channels including 1) project based supply;2) partnering with international telecommunication carriers; and 3)partnerships with major industry distributors.

- NTC’s key point of differentiation is that its software is open platformand hence more versatile and adaptable than rival products, which wasa primary reason for the success with VGE in a competitive tenderprocess, noting a typical 9-12 month development time for productsto be customised, with contract manufacturers used in Asia to ensurescalable production and limited capex requirements.

- FY14 guidance has been provided for revenue and EBITDA of $58m-$63m and $4.6m-$5.1m respectively; an ‘inflexion point’ has beenreached with the M2M business anticipated to represent ~55% ofgroup revenues compared to ~20% in FY13 and the balance from thegroups traditional legacy business that supplies a range of wirelesstelecommunications products, with the M2M revenue growth driven bycontracts including Victorian Smart Metering (for SP Ausnet), the NBN(for Ericsson), NSW ticketing (for Cubic), and initial Vodafone orders.

Well positioned within the high growth global M2M segment

Company Overview / Analysis of Operations

Over 30 years’ experience in development of data communications products

NetCommWireless (ASX: NTC) was founded in 1982, with over 30 years of experience in developing and selling industry leading data communications devices through the wireless evolution.

The business has consistently evolved with technology, and today is comprised of 2 segments which we discuss, being

• the traditional business

• the global M2M (machine-to-machine) business

Balance now being managed between 2 businesses

Over the past 1-2 years, the group has achieved a balance between maintaining existing processes where appropriate and making modifications where needed, whilst continuing the strategy to transition toward the high growth global M2M segment.

1. Traditional business

The traditional legacy business encompasses the sale of a range of telecommunications products in Australia and New Zealand, effectively to meet demands for high bandwidth activities.

Products include consumer grade ADSL / filters and 3G routers, with a range of customers including ISP’s (eg. TPG Telecom, Adam Internet), telecommunications carriers including Telstra, Vodafone NZ, and retailers including Officeworks.

In addition, NTC’s technology innovation also focusses on business continuity devices to ensure businesses will stay on line with wireless broadband in the event their fixed line connection fails.

In FY14, management indicate that revenues for this division are anticipated to be ~$27m (~44% of group revenues), which is anticipated to remain reasonably static going forward.

2. Global M2M business

M2M involves an exchange of information between machines using a cellular network without any human interaction, having risen to prominence as the cost of implementation has decreased and allowing businesses to increase productivity.

These machines include EFTPOS devices, ATM’s, digital signage, medical devices, security cameras, elevators, and systems to enable real-time awareness and control.

M2M effectively allows organisations to achieve a wide range of machine driven functions including

• monitor the environment

• report status

• automate processes

• receive instructions

• take action

This provides significant benefits for businesses including increased efficiency, reduced manpower requirements, new revenue streams, energy savings and reduced downtime.

As per the Annual Report, NTC’s efforts are heavily concentrated on global 3G/4G markets, with a particular focus on wireless M2M communications which is innovating the way that every ‘thing’ communicates.

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NTC’s M2M products, solutions and services are designed to support applications in areas such as transport, metering, security, surveillance, banking, health and mining, with the groups M2M devices running on an open source Linux platform.

In FY14 revenues from the M2M division are expected to be ~$34m (including smart metering and NBN), representing in excess of 50% of group revenues vs ~20% in FY13.

The majority of revenues currently generated in Australia is from clients including Victorian Smart Metering (via deployment for SP Ausnet), Ericsson (NBN), and Cubic (NSW ticketing) that will require ~6,000 devices to cover all of Sydney’s buses and ferries.

The Cubic contract is an example where the initial contract has potential to expand to other related geographic opportunities, with Cubic a global leader in ticketing systems and NTC’s product specifically designed to suit Cubic’s system.

NTC also provides a product for rural broadband, involving the deployment of wireless networks (3G / 4G) in rural areas under a contract held with Ericsson.

This product closes the broadband gap of the NBN (national broadband network) for the expected ~7% of Australian premises expected to be eventually connected using fixed wireless and satellite services.

Importantly, international contracts won and being implemented expected to deliver “substantial” growth going forward.

Moreover the global M2M market is highly fragmented, and with a number of players operating without directly competing.

NTC’s strategy has subsequently involved the expansion of the customer base and winning long-term contracts in targeted overseas markets through strategic partnerships and identifying customers that will deliver sustainable revenues and healthy margins.

Global M2M market anticipated to be >US$66bn by 2016

The global market is expected to grow rapidly, with the market size for M2M applications forecast to grow to >US$66bn by 2016 that implies a CAGR of 22%, as highlighted in the following table.

Source: NTC, Visiongain

Over its history NTC has launched several first-to-market product innovations, with ongoing investment in engineers and R&D (currently ~$3.6m pa and predominantly ‘D’), noting a strategy to reduce reliance on 3rd party R&D suppliers to further strengthen the groups intellectual property.

Today, NTC’s M2M business has evolved to have a global reach, having offices in Sydney, New Zealand, North America, and the Middle East, plus sales teams in the UK and Europe.

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Current sales are to organisations including:

• Vodafone global

• Comms card for ‘Smart Meters’ in Victoria, via a partnership with Ericsson

• The NBN Co. via another partnership with Ericsson

• direct customers in Australia, North America, Middle East and Europe.

In addition, NTC announced on 30 April 2014 the signing of a strategic partnership with Kanematsu Communications in Japan for the distribution of M2M devices in Japan for the delivery of NTC’s products to the groups major export and telecommunications carrier customers.

Security Details

Key security details as at July 2014 are as follows:

• Total shares = 128.9m, Free float = 73%

• Turnover: last year = 46.1m, last month = 7.5m, last week = 1.4m

• Price performance: year rolling low = $0.19, year rolling high = $0.825

• Classification: Information Technology / Technology Hardware & Equipment /

• Index Inclusions: none

Investment highlights

We see the investment highlights of NTC as being:

• over 30 years’ experience in the supply of technology driven communications products, with associated depth of IP from ongoing R&D innovation

• increasing likely contribution from FY15 of revenues from global partners now in place

• increasing scale benefits from a level of ‘critical mass’ now reached

• ability to deliver consistent long term growth via ongoing progression into new M2M verticals

• level of revenue stability provided by traditional legacy business

• experienced senior management and Board, with a high level of internal focus on risk management across all facets of the operation

• increasing level of revenue diversification from both new clients and segments

• clear scope for our assumptions to be conservative beyond the current year from ongoing contract success

Significant growth opportunities for NTC’s M2M business…

NTC’s key competitive differentiation is the ability to customise its product / services by engineering technologies designed to meet customer specific requirements, such as product features, design, budget or delivery timeframe.

This high degree of flexibility compares to the majority of competitors who develop and offer a ‘one size fits all’ offering.

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This has been a key reason for NTC’s increasing international contract success where customers have required specialised devices for diverse and unique applications (with examples discussed later in this report).

Typically there is a 9-12 month development time for products to be customised once a new contract is won, primarily entailing an investment of engineering time to customise NTC’s product for the required M2M offering, with all design work undertaken in the Sydney headquarters noting a team of 42 engineers (comprising 39 software focussed and 3 hardware).

Strategy is to avoid high volume, low price segments

Managements’ strategy has been to avoid high volume, low price market segments and instead develop high-performance specialised and customised devices for leading companies globally by leveraging cross industry opportunities / partnerships based on three key models, being:

1. Project based supply

A number of different to-market channels

In order to deliver the specific software and hardware requirements of industry partners and enterprise customers requires expertise in a broad range of areas that include solution architecture and the ability to integrate the groups product design into the application.

NTC’s adaptable approach has enabled the group to secure project based M2M supply deals in areas such as energy utilities, security, healthcare and ticketing.

2. Telecommunication carrier partnerships

One of the major areas of focus is the fast evolving technological environment, with the strategy to build entrenched relationships with leading telecommunications carriers such as Telstra, Vodafone Global Enterprises, Rogers & TELUS in Canada, Etisalat and Mobily in the Middle east and Telecom New Zealand.

This provides an ability to implement a ‘coat tails’ strategy by working with large organisations to capture opportunities in global markets, whilst at the same time reducing risk / costs involved with growing and diversifying across geographies and markets.

3. Distribution / channel partnerships

Management have identified expansion of the partner network as a clear growth opportunity for the group, by partnering with established and respected channel partners to help extend the groups reach into new geographies and vertical markets.

In return NTC offers a diverse range of marketing resources and intellectual property to help differentiate and add value to resellers and system integrators.

… with focus on select M2M verticals

Management emphasise that NTC aims to compete in specialised or customised devices in the global market, with the aim to avoid the high volume, low price standard equipment market where the group is unlikely to be able to be price competitive, hence will mainly focus on first world countries or in regions with no established fixed line infrastructure.

NTC’s strategy has in part revolved around both developing relationships with Telecommunications Carriers, with the objective to secure agreements with 6 of the top 20 M2M global telecommunications networks, with NTC’s software being open platform and its products sitting between the end users and the infrastructure provider.

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The strategy is also to actively pursue selected M2M verticals that include:

Focus on select M2M segments

• Smart metering

• E-health

• Building automation (eg. elevators)

• Digital display

• ‘Light Industrial’ such as vending / kiosks, POS, and ATM’s.

Currently, NTC has 3 of the top 20 global carriers as contracted partners, including Vodafone, Etisalat and Verizon Wireless (with Telstra also a partner).

The Vodafone partnership in particular will likely contribute meaningful revenues from FY15, with NTC originally announcing in October 2012 that an agreement had been signed with Vodafone Global Enterprise as their supplier of M2M IP modems for global deployment following an extensive competitive tender process.

The agreement is with Vodafone Global Enterprise (VGE) based in Germany, who are targeting the largest 1,500 companies globally for M2M adoption, with NTC the exclusive provider of ‘light industrial’ devices to VGE noting that this is anticipated to represent ~80% of VGE’s M2M demand and with more expensive / robust ‘industrial grade’ devices the balance.

Effectively NTC will supply custom designed modems to meet the global deployment requirements of Vodafone and its partners, with the device compatible with Vodafone networks worldwide and be managed by Vodafone’s global M2M platform with support across the globe.

Following a lengthy period of custom design and testing by NTC, Vodafone announced in February 2013 the official launch of the Vodafone MachineLink 3G, able to be integrated with a diverse range of the groups M2M applications.

Only a small number of devices having been shipped to date as Vodafone continues to conduct its own trials for the product with potential global customers, hence with relatively slow take-up in FY14 (~10,000 units) before accelerating growth anticipated from FY15.

Other recent strategic partnerships include with Etisalat (in Oct 2013) to supply M2M technologies in the Middle East, Asia and Africa, and with Verizon Wireless in the USA (in Nov 2013) to deliver wireless M2M devices to Verizon Wireless’ sales channel.

As previously highlighted, NTC’s strategy is to develop high performance, specialised and customised devices for major international companies in targeted ‘vertical’ segments.

As mentioned, NTC also is actively pursuing selected M2M verticals that include:

• Utilities

M2M in utilities allows industry participants to better manage energy, essential infrastructure services and supply of electricity that must match real-time usage.

As an illustration, this is an important capability given electricity cannot typically be stored, with the difference between peak and average demands on the grid being normally substantial.

M2M subsequently eliminates the need to undertake large investment to expand networks to meet peak demand although being not needed for periods of normal demand, with peak demand ‘spikes’ occurring less than 1% of the time.

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In essence smart meters are able to automatically record and relay usage data at regular intervals to precisely measure energy use, thereby taking pressure off networks by giving consumers the ability to shift consumption to off peak times of the day, offering a range of benefits to both the consumer and the utility.

Benefits to the utility include avoiding manual reading costs, automatically determine load profiles, and remotely monitor / manage grid assets.

NTC designs, develops and manufactures Grid Net-enabled 3G wireless communications cards for the global smart grid market both in Australia and internationally.

• Healthcare

Increasing opportunities for M2M in healthcare is being driven as the global population ages.

In particular a growing shortage of doctors and healthcare professionals in rural and regional communities coinciding with the aging demographic and increasing chronic illnesses, hence the need for remote healthcare.

This provides significant opportunities for doctors / medical practitioners to provide clinical healthcare remotely by monitoring and controlling medical equipment, or connecting with patients via video over a wireless network.

NTC provides devices that enable the remote tracking, monitoring and control of medical devices over a wireless 3G/4G network.

• Transportation

The transportation sector represents one of the greatest opportunities for wireless M2M given the importance of real-time information to enable cost effective monitoring of efficiency, safety, maintenance and logistics.

To this end, the live tracking of transportation vehicles over global 3G/4G networks supports applications such as electronic ticketing, fleet management, emergency assistance, traffic information and navigation.

Moreover, M2M supports the global shift to cashless transport systems that will see cash and paper tickets replaced with smartcards.

NTC has developed 3G M2M devices in Australia for the NSW State Government’s integrated electronic ticketing system being phased in to operate across the state’s public ferries, trains and buses.

• Business Services

M2M provides businesses the ability to monitor and manage remote assets plus facilitate live updates to digital signs.

As an illustration, digital signs once necessitated a costly fixed line connection that today is able to be replaced by 3G networks that provide the ability to install signs at almost limitless locations where information is needed to be quickly deployed.

NTC also has a product designed for vending machines and kiosks that interact over 3G and send real time sales data to a central database, enabling pricing to be automatically adjusted in line with demand and monitor consumption to ensure that machines are never out of stock.

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Other ‘verticals’ adopting M2M technology include:

• Point-of-sale wireless terminals

• Building automation (eg. elevators)

• Asset management (eg. businesses assets and site equipment)

• Security (eg. individual alarms and mobile CCTV)

• Smart Metering

Rapidly growing M2M contract and strategic partnerships

NTC’s success over the past year is highlighted by the following:

Source: NTC presentation

Benefits of strategy evidenced in 1H14 result …

Profit & Loss

NTC’s 1H14 result was reflective of the groups ongoing transition away from customer based technologies toward the global M2M market, with M2M revenue contribution representing 48% of total revenues in the period compared to just 15% in 1H13.

NPAT of $0.2m compared to a NLAT of $0.8m in pcp, with key features including

• revenues up 38% to $30.5m, largely attributable to orders generated from the Ericsson smart metering contract that is now at ~65% of units fulfilled

• EBITDA of $2.0m vs a loss of $0.2m in pcp.

This includes “appropriate” investment in product development and sales personnel to fund growth, with $1.8m investment in product development in the period and further investment into sales and engineering resources planned in 2H14.

Balance sheet

Net operating cash flow was $6.5m in 1H14 compared to $1.8m in pcp.

Net cash at 31 Dec 2013 was $2.2m compared to $3.3m net debt at the end of FY13, assisted by an equity raising of ~$5.7m (at $0.255 per share) completed in mid-2013.

As at 1H14, Goodwill was $0.9m and Intangibles were $11.4m.

We have assumed no dividend is paid over the forecast period given the likely retention of capital to capitalise on the significant growth opportunities available.

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…with further positives to materialise in 2H14

The 1H14 result included minimal contribution from recent M2M contracts and new strategic partnerships, including Etisalat Group, Vodafone Qatar and Verizon, which reflects a traditional lag between contract and delivery.

Growth in 2H14 will also be driven by early orders from the Vodafone global contract, Cubic (NSW ticketing) and additional volume in NBN.

This supports FY14 guidance for revenue and EBITDA of $58m-$63m and $4.6m-$5.1m respectively, a significant increase from the $43m and $0.8m respectively in pcp.

M2M revenues are now a larger contributor than traditional division

M2M revenues in FY14 are anticipated to be ~$34m that will represent ~55% of the groups total, which compares to ~$8m in FY13.

In addition, management indicate that NTC is in discussions and trials in relation to a number of new M2M and smart metering opportunities in a range of geographies including Australia, US and the Middle East.

Should these opportunities translate into orders, management highlight that this support further strong growth in revenue and earnings from FY15.

A level of ‘critical mass’ now reached

Level of critical mass now reached resulting in increasing scale benefits

Importantly a level of mass has now been achieved, with the fixed cost base (of ~$17m-$19m) capable of supporting group revenues of approximately 3-times the FY14 base of ~$60m ie. ~$180m of group revenues.

In addition, there is the ability to rapidly up-scale production capability given the use of third party contract manufacturers.

This will deliver meaningful operational leverage (and group margin expansion) as revenues grow, supported by a large pipeline via both carrier partners and directly, with our view that our assumptions will likely be conservative.

Whilst some hedging is undertaken where necessary, there is a high degree of ‘natural hedge’ given the majority of M2M revenues are in $US and with all manufacturing costs also in $US, whilst the A$ cost base is ~$15-$16m (head office, engineers etc). relative to ~A$23m of revenues.

Investment Risks

We identify the following as the key risks to the business:

• Retention of key staff, including risk of defection of developers to competitors

• Funding / liquidity, including the potential need for initial working capital for any large contracts secured; this is managed by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial asses / liabilities.

• Credit risk management, mitigated by NTC’s policy of only dealing with creditworthy counterparties, continuously monitored and approved by the CEO and CFO.

• Loss of existing contracts, which we consider unlikely and with the majority of M2M related contracts still in ‘ramp up’ phase after a prolonged period of testing

• Unsuccessful customer trials, with the timing of the contract ‘ramp up’ dependent on extensive customer testing of the product.

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• Increasing competition, particularly from larger integrated players moving into this space, although with a level of comfort from NTC’s focus on ‘niche’ opportunities, open platform software, and partnerships with large global industry players

• Rapid changes in technology, with the need to continuously innovate to keep pace

• Currency, with the majority of product sold in $US although reported in $A, although part offset by a large natural hedge given $US costs outside the Australian operation, and appropriate hedging undertaken

• Reputation, with the need to be perceived as a trusted global partner for global companies with a high reliance on brand strength.

Investment fundamentals

A table of NTC’s investment fundamentals is provided below, whilst a more detailed summary is provided at the back of this report.

Year ending Jun 2013 2014F 2015F 2016F

NPAT (MAS Adj $m) (0.5) 0.7 3.2 7.8

EPS (¢) (0.5) 0.5 2.5 6.0

PER nmf 133.3 x 28.6 x 11.8 x

EPS Growth -134% 366% 143%

Operating CFPS (¢) 1.8 5.1 6.3 8.5

Price / Op CF 38.7 x 13.9 x 11.3 x 8.3 x

Free CFPS (¢) 1.3 4.6 5.6 7.8

Price / Fr CF 53.8 x 15.5 x 12.6 x 9.1 x

Dividend (¢) 0.0 0.0 0.0 0.0

Yield 0.0% 0.0% 0.0% 0.0%

Franking

Payout Ratio 0% 0% 0% 0%

EV / EBITDA 118.0 x 18.1 x 10.5 x 5.9 x

NTA per share $0.10 $0.11 $0.13 $0.18

Source: NTC, Moelis Australia Estimates

Share price upside potential as high EPS growth delivered

Importantly, we see strong revenue growth through the forecast period as underpinned by the ‘ramp up’ of existing contracts in place.

This will be accompanied by meaningful scale benefits from the relatively fixed CODB of ~$17m-$19m.

In addition, we see significant upside to our assumptions from further contract success, with management indicating that they are well advanced with a number of customers / strategic partners across the targeted industry verticals.

Prospects for share price appreciation as robust EPS growth materialises

We subsequently see prospects for share price appreciation as this robust EPS growth is delivered.

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Appendices

Management / Board Profile

• Chairman & non-executive Director – Justin Milne

Mr Milne has extensive experience in the telecommunications industry experience and an experienced company director having served in diverse industry sectors with a multinational focus; he was formerly Group Managing Director of Telstra’s broadband and media businesses, and was head of Telstra’s New Media businesses in China. He is currently a Non-Executive Director of NBN, Tabcorp Holdings Ltd and Members Equity Bank Pty Ltd.

• Managing Director & CEO – David Stewart

Mr Stewart has more than 30 years in management and business leadership roles, including founding Banksia Technology Pty Ltd in 1988 and successfully managing that company as a fast growing and highly profitable business, with an extensive financial and sales and marketing background. He instigated the takeovers of a number of competitors, including Netcomm Ltd in November 1997, assuming the role of Managing Director of the merged entity.

• Executive Director, CFO & Company Secretary – Ken Sheridan

Mr Sheridan is a chartered accountant with over 30 years’ experience in senior management roles, having joined the Board in December 2010. He provides experience and direction in financial, HR, IT risk management and business strategy, and is actively involved in NTC’s business planning and design / implementation of governance framework.

• Non-executive Director – Kenneth Boundy

Mr Boundy joined the Board in August 2012, and is currently Chairman and / or non-executive director on four boards; he has held a number of prominent positions over the past 30 years including Managing Director of the Australian Tourism Commission for Tourism Australia, Executive General Manager International of James Hardie Industries, and General Manager, Corporate Development, of Goodman Fielder Limited.

• Non-executive Director – Stuart Black

Mr Black joined the Board in March 2013, and is a Chartered Accountant and experienced Company Director, including currently having a non-executive role with Australian Agricultural Company Ltd and Coffey International Ltd; he is the former Managing Partner in the chartered accounting firm Chapman Eastway and has extensive experience in professional services, agribusiness, financial services, manufacturing, import, distribution, IT and biotechnology.

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Netcomm Wireless (Buy) Shares (diluted): 128.9m Market Cap: $92m NTC : $0.71

Valuation Data Profit and Loss ($m)

Year ending Jun 2012 2013 2014F 2015F 2016F Year ending Jun 2012 2013 2014F 2015F 2016F

EPS (MAS adj.) (¢) 1.5 (0.5) 0.5 2.5 6.0 Revenue 59.4 42.9 61.2 74.9 104.6

P/E ratio 48.8 x nmf 133.3 x 28.6 x 11.8 x growth -12% -28% 43% 22% 40%

P/E relative * nmf 831 200 EBITDA 4.9 0.8 5.1 8.5 14.2

EPS growth -134% 366% 143% Depreciation 0.6 0.9 1.0 1.1 1.2

EBITA 4.2 (0.1) 4.1 7.4 13.0

EV / EBIT 43.4 x nmf 61.7 x 19.5 x 8.3 x Amortisation 2.0 2.0 2.6 2.8 3.0

EV / EBIT relative * nmf 493 176 EBIT 2.2 (2.1) 1.5 4.6 10.0

EV / EBITDA 20.0 x 118.0 x 18.1 x 10.5 x 5.9 x growth 2725% -194% 205% 120%

EV / EBITDA relative * 989 177 115 Net interest expense 0.5 0.6 0.7 0.8 0.9

Pre-tax prof it 1.8 (2.7) 0.8 3.8 9.1

EPS reported (¢) 0.8 (0.5) 0.5 2.5 0.0 Tax 0.2 (2.1) 0.1 0.6 1.4

P/E ratio 91.2 x nmf 133.3 x 28.6 x 0.0 x Tax rate 11.4% 79.8% 15.0% 15.0% 15.0%

EPS grow th -174% -164% -207% 366% 0% Preference dividends 0.0 0.0 0.0 0.0 0.0

Minorities 0.0 0.0 0.0 0.0 0.0

Op CFPS (¢) nmf 1.8 5.1 6.3 8.5 MAS adjustments 0.0 0.0 0.0 0.0 0.0

Price / Op CF nmf 38.7 x 13.9 x 11.3 x 8.3 x NPAT (MAS adj) 1.6 (0.5) 0.7 3.2 7.8

Free CFPS (¢) nmf 1.3 4.6 5.6 7.8

Price / Free CF nmf 53.8 x 15.5 x 12.6 x 9.1 x NPAT (pre one-off) 1.6 (0.5) 0.7 3.2 7.8

One-off items (0.7) 0.0 0.0 0.0 0.0

Dividend (¢) 0.0 0.0 0.0 0.0 0.0 NPAT (reported) 0.8 (0.5) 0.7 3.2 7.8

Dividend Yield 0.0% 0.0% 0.0% 0.0% 0.0%

Franking

Cashflow ($m)NTA per share $0.10 $0.10 $0.11 $0.13 $0.18 Year ending Jun 2012 2013 2014F 2015F 2016F

EBITDA 4.9 0.8 5.1 8.5 14.2

Balance Sheet ($m) Net interest paid (0.5) (0.6) (0.7) (0.8) (0.9)

Year ending Jun 2012 2013 2014F 2015F 2016F Tax paid (0.2) 0.0 2.1 (0.1) (0.6)

Cash 7.1 3.9 3.9 3.9 8.9 Gross cashflow 4.2 0.2 6.5 7.5 12.8

Trade Debtors 9.3 4.7 6.1 6.7 9.4 (Inc) / dec in w k'g cap (3.8) 3.3 0.1 0.3 (2.2)

Inventories 9.9 9.9 13.5 16.5 22.0 Inc / (dec) in provisions (0.0) (0.3) (0.1) 0.2 0.4

Other 1.1 1.3 1.3 1.3 1.3 Other (0.7) (1.2) 0.0 0.0 0.0

Current assets 27.3 19.7 24.7 28.3 41.5 Operating cashflow (0.3) 2.0 6.5 8.1 11.0

Property Plant & Equip. 1.8 1.9 1.6 1.3 1.0 growth -107% 228% 23% 36%

Investments 0.0 0.0 0.0 0.0 0.0

Goodw ill 0.9 0.9 0.9 0.9 0.9 Capital expenditure (0.4) (0.6) (0.7) (0.8) (0.9)

Other intangibles 4.8 6.2 7.5 8.7 9.8 Asset sales 0.0 0.0 0.0 0.0 0.0

Other 2.3 4.7 4.4 4.4 4.4 Free cashflow (0.7) 1.4 5.8 7.3 10.1

Non-current assets 9.8 13.7 14.4 15.3 16.1 growth -124% -307% 307% 25% 38%

Total Assets 37.2 33.4 39.2 43.7 57.6 Investments 0.0 0.0 0.0 0.0 0.0

Divestments 0.0 0.0 0.0 0.0 0.0

Trade Creditors 7.2 5.9 11.0 15.0 20.9 Other (3.6) (3.8) (3.9) (4.0) (4.1)

Debt 12.4 7.1 4.9 1.6 0.7 Investing cashflow (4.0) (4.4) (4.6) (4.8) (5.0)

Provisions 1.3 0.9 0.9 1.0 1.5

Other 0.4 0.2 0.2 0.2 0.2 Equity raised 0.1 4.5 0.0 0.0 0.0

Total Liabilities 21.4 14.2 17.0 17.9 23.2 Dividends paid 0.0 0.0 0.0 0.0 0.0

Net Assets 15.8 19.2 22.2 25.8 34.4 Net borrow ings 6.5 (5.3) (2.2) (3.3) (1.0)

Financing cashflow 6.7 (0.8) (1.9) (3.3) (1.0)

Equity & reserves 10.2 14.1 14.1 14.1 14.1 Net inc/(dec) in cash 2.4 (3.2) 0.0 0.0 5.0

Retained prof its 5.6 5.1 8.0 11.7 20.3

Shareholders Equity 15.8 19.2 22.2 25.8 34.4

Minorities 0.0 0.0 0.0 0.0 0.0 Profitability, Leverage & Liquidity Ratios

Total Equity 15.8 19.2 22.2 25.8 34.4 Year ending Jun 2012 2013 2014F 2015F 2016F

EBITDA / sales 8.2% 1.9% 8.3% 11.3% 13.6%

1H / 2H Results ($m) EBITA / sales 7.1% -0.3% 6.7% 9.8% 12.5%

1h12 2h12 1h13 2h13 1h14 EBIT / sales 3.8% -4.9% 2.5% 6.1% 9.6%

Revenue 25.2 34.1 22.0 20.8 30.5 Return on assets 8% -7% 5% 12% 23%

EBITDA (0.4) 5.3 (0.8) 1.6 1.3 Return on equity 10% -3% 3% 13% 26%

EBIT (1.7) 3.9 (2.1) 0.0 (0.5)

MAS adj. profit (1.3) 2.9 (0.8) 0.3 0.2 Net debt / (cash) ($M) 5.4 3.3 1.0 (2.2) (8.2)

NPAT (pre one-off) (1.3) 2.9 (0.8) 0.3 0.2 Debt / equity 79% 37% 22% 6% 2%

Operating cashflow (1.0) 0.7 1.8 0.2 6.5 Net debt / equity 34% 17% 5% nmf nmf

EBIT / sales -6.8% 11.6% -9.5% 0.0% -1.7% Interest cover 4.9 x n/a 2.1 x nmf nmf

EPS (¢) (1.2) 2.7 (0.8) 0.3 0.1

EPS grow th -429% -90% Dividend payout ratio 0% 0% 0% 0% 0%

DPS (¢) 0.0 0.0 0.0 0.0 0.0 Capex (net) / dep'n 0.7 x 0.6 x 0.7 x 0.7 x 0.8 x

% of FY sales 42% 58% 51% 49% 50% Working capital / sales 20% 20% 14% 11% 10%

% of FY NPAT (adj) -84% 184% 155% -55% 24%

'* Relative to Moelis Australia Securities Pty Ltd grow th companies universe 30-Jul-14

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DISCLOSURE APPENDIX

ANALYST CERTIFICATIONThe analyst, Todd Guyot, responsible for the content of this research report, in whole or in part, certifies that with respect to the companies or securities thatthe individual analyses, that (1) the views expressed in this report accurately reflect his or her personal views on the subject companies and securities, and (2)no part of his or her compensation was, is, or will be directly or indirectly linked to the specific recommendations or views expressed in this research report.

COMPANY SPECIFIC DISCLOSURESThe preparation of this report was funded by ASX in accordance with the ASX Equity Research Scheme. This report was prepared by Moelis AustraliaSecurities Pty Ltd and not by ASX. ASX does not provide financial product advice. The views expressed in this report do not necessarily reflect the views ofASX. No responsibility or liability is accepted by ASX in relation to this report.

RATING DEFINITIONSAll companies under coverage are assigned a rating of Buy, Hold or Sell based on the expected 12 month total return estimated by the analyst(s). The totalreturn is a combination of the estimated capital gain or loss, in addition to the estimated 12 month forward dividends or distributions. In relation to allcompanies that Moelis Australia Securities conducts research coverage on the relevant total return bands that derive the ratings are:

Buy: > 15% Hold: 5% to 15% Sell: < 5%.

RATINGS DISTRIBUTION TABLE

Distribution of Ratings as at 31 July 2014

SELL HOLD BUY

5.71% 51.43% 42.86%

Sep

/11

Nov

/11

Jan/

12

Mar

/12

May

/12

Jul/1

2

Sep

/12

Nov

/12

Jan/

13

Mar

/13

May

/13

Jul/1

3

Sep

/13

Nov

/13

Jan/

14

Mar

/14

May

/14

Jul/1

4

$1.00

$0.80

$0.60

$0.40

$0.20

$0.00

NTC Target Price

Rating and Price Target History: Netcomm Wireless Ltd (NTC) as of 29/07/2014

Created By BlueMatrix

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GENERAL TERMS OF USE FOR MOELIS RESEARCH REPORTSResearch reports have been prepared by Moelis Australia Securities Pty Ltd (“Moelis Australia”), ACN 122 781 560, AFS Licence 308 241, a Participant of theASX Group and Chi-X and the intellectual property relating to the content vests with Moelis Australia unless otherwise noted.

GENERAL DISCLAIMER AND DISCLOSURESDisclaimer

The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore,its accuracy is not guaranteed, and except to the extent that liability cannot be excluded, Moelis Australia does not accept any liability for any direct orconsequential loss arising from relying upon the content in this document. This document is not an offer or solicitation of an offer to buy or sell any securityor to make any investment. Any opinion or estimate constitutes the analyst's best judgement as of the date of preparation and is subject to change withoutnotice. Due to changing market conditions, actual results may vary from forecast provided. Past performance is not an indication of future return, and lossof original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income from, certain investments.

This document is intended to provide general advice to wholesale investors only. No investment objectives, financial circumstances or needs of any individualhave been taken into consideration in the preparation of this report. It does not purport to make any recommendation that any buying or selling is appropriatefor any person’s investment objectives or financial needs, and prior to making any investment decision a person should contact their professional advisorson whether or not any information in this document is appropriate to their individual circumstances.

This document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality,state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or would subject MoelisAustralia to any registration or licensing requirement within such jurisdiction. International Investors should contact their local regulatory authorities todetermine whether any restrictions apply to their ability to purchase this investment. If you have received this document in error, please destroy it and anycopies of it immediately.

Disclosure

Moelis Australia, its officers, directors, employees, agents and authorised representatives may hold securities in any of the companies to which this documentrefers and may trade in the securities mentioned either as principal or as agent. Our sales and trading representatives may provide oral or written opinionsthat are contrary to the opinions expressed in this document. Our related body corporate Moelis Advisory Australia Pty Ltd (“Moelis Advisory”), ACN 142008 446, AFS Licence 345499, may make statements or provide advisory services to the company to which this document refers and such statements maybe contrary to the views or recommendations expressed in this document. The analyst responsible for this document has taken reasonable care to achieveand maintain independence and objectivity and certifies that no part of their compensation was, is or will be, directly or indirectly, related to the specificrecommendations or views expressed in this report. The compensation of the analyst is based on overall revenues of Moelis Australia and its related entities,the “Moelis Australia Group”. The analyst may also interact with trading desk personnel, sales personnel and other parties for the purpose of gathering,applying and interpreting market information. In producing research reports, the analyst may attend site visits and other meetings hosted by the issuersthe subject of its research report. In some instances the costs of such site visits or meeting may be met in part or in whole by the issuers concerned if MoelisAustralia considers it is appropriate and reasonable in the specific circumstance relating to the site visit or meeting and will not comprise the integrity ofthe research report.

Moelis Australia is a trading participant of the ASX Group and Chi-X and earns fees and commissions from dealing in the relevant financial product.

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