South African technology group Mustek is optimistic about the growth prospects of its fibreoptic cable manufacturing business. The company, valued at approximately R890m on the JSE, is a leading assembler and distributor of information and communications technology products. Established in 1987, Mustek boasts a diverse brand portfolio, including Acer, Asus, Samsung, and Lenovo, as well as its own Mecer brand of computing products.
Mustek's recent financial results revealed a significant increase in earnings from its associate companies, which rose to R25.7m for the year to end-June, compared to R6.3m in the prior year. The company's associate companies, including YOA Cable and Khauleza, all contributed positively to the group's earnings. YOA Cable, a fibre cable manufacturing business in which Mustek holds a 25.1% stake, was a key contributor to the growth in associate performance.
During an investor presentation, Mustek's group CEO, Hein Engelbrecht, highlighted the strong demand for fibre cable products. He attributed the growth to increasing demand from China and the ongoing conflict in the Middle East. Engelbrecht noted that the demand for fibre is not only driven by new rollouts but also by the need to refresh old infrastructure. Additionally, cable prices have surged, providing opportunities for Mustek to increase its margins.
A significant factor driving the demand for fibre cable products is a huge tender from China Telecom, which has allocated a substantial portion of the business to major players, including YOFC, a Chinese cable and fibre cable manufacturer. YOFC is a partner in YOA Cable, Mustek's fibre cable manufacturing business. Engelbrecht expressed hope that the company will be able to negotiate better terms in the future.
The ongoing conflict in the Middle East is also driving demand for fibre cable products. Engelbrecht explained that many drones used in the conflict rely on fibre cable for short-distance applications. He described the extensive use of fibre cable in these areas as resembling a complex network.
Mustek's financial results for the period showed a 1% year-on-year increase in revenue to R7.26bn, driven by a small increase in its distribution segment and a 75.9% increase in revenue from its services and support segment. The company's ebitda rose 12% to R277m, while headline earnings per share increased 181% to 205c.
Despite the positive outlook, Mustek's shares were 2.09% weaker in late afternoon trade on Wednesday, at R15.46. The company declared a final dividend of 37.5c for the period, up from 13.75c previously. Mustek generated R115.8m in cash from operations, compared to R687.3m a year earlier.
Key points
- Mustek expects growth in fibreoptic cable manufacturing driven by demand from China and conflict in the Middle East.
- The company's associate companies, including YOA Cable, contributed positively to its earnings.
- Mustek's revenue rose 1% year-on-year to R7.26bn, driven by growth in its distribution and services segments.
