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Proxy to the tech sector's recovery
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sunview
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21-Oct-2006 10:45
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In the past few days it seems to me it is testing to break out of US$0.125. If the STI can hold on at the current level, laggards will benefit. The stock has turned around and posted 3 consecutive quarters of profits. As pointed out by KE, it remains cash-rich with about half of its market capitalization of cash and cash-equivalent. DBS estimates its book value for FY06 as US$0.22. Both DBS and KE has a Buy rating for the stock, with the target price set at US$0.22 and $0.20 respectively. Interesting to monitor its price movement. |
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Nostradamus
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15-Sep-2006 19:37
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It has turned around with net profit came in at a record NT$275m (2Q05: NT$333m loss) as the company took advantage of favourable market conditions to divest many of its portfolio companies. During the quarter, the TWI soared as high as 7,400 points before slipping to the 6,300 level towards end 2Q06. Arising from the divestments/exits, the group reaped capital gains amounting to NT$553m (2Q05: NT$19m); while provision for impairment also fell 45% to NT$216m. As of 1H06, it has achieved net profit of NT$440m, or 98% of KE's full year forecast. It is expected to reduce its portfolio from 186 to 150 companies by end-06. This streamlining effort would result in better focus and allow management to take a more proactive role in its remaining portfolio of investee companies. For 2006, it has budgeted NT$1b for new investments, with the bulk of this amount disbursed already. The new investments are primarily geared towards sectors such as internet, heavy machineries, electronics and telecommunications. It remains cash-rich with 50% of its market capitalization comprising of cash and cash equivalent (~NT$2.6b). Management is cognizant of the positive impact from capital management initiatives as the stock currently trades at 0.6x book. It has started a stock buyback program and is considering the resumption of dividend payments. It is noteworthy that in its heydays (1997-2001), the company annual dividend payout ranged between US0.6-1.8 cents/share. On a broader perspective, the technology sector has been lagging broad market trends over the past 18 months as the impact of higher interest rates, input prices and inventory backlog crimped margins of component suppliers in the value chain. Encouraging signs of late such as lean inventory in the channels, back-to-school demand and the introduction of Windows Vista in 1Q07 further bolster the odds for a tech recovery in the next 12 months. It offers a cheap proxy to this recovery play with the safety margin of a strong balance sheet; KE maintains its recommendation with target price of US$0.20 based on 0.9x FY06E P/BV. |
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